A business owner invests heavily in their company’s success, not only financially but often emotionally as well. It can be difficult to accept that a spouse has the right to a fair share of the company you’ve worked so hard to build, but Arizona’s community property divorce law may consider a company as belonging to the marital community and subject to the equal division of its value. Even if you began your company before the marriage, your spouse may have the right to half of the improvement in the company’s value that occurred during the years of the marriage.
If you own a business and are facing divorce, you’re dealing with more than just a personal separation, you’re facing a high-stakes financial event. A Chandler divorce lawyer can help you protect your company, minimize risk, and position yourself for the best possible outcome.
So, how does a spouse prepare their company for an Arizona divorce, where the law demands a fair and equitable division?
Arizona’s divorce law of community property under Arizona 25-211 states the following:
“All property acquired by either husband or wife during the marriage is the community property of the husband and wife, except for property that is acquired by gift, devise, or descent.”
In other words, only property specifically gifted to one spouse alone during the marriage, or property they’ve inherited during the marriage, is their separate property. Assets that each spouse owned separately before the marriage remain their separate property, including a company; however, due to the commingling that naturally occurs during the marriage when the spouse who owns the company uses company income to support the marriage and pay for marital property and expenses, the company becomes part of the marital community.
In this case, the spouse has the right to half of the company’s income and any increase in its value since their marriage, unless the company owner has an enforceable prenuptial agreement that protects the asset from becoming community property during the marriage.
Before addressing possible changes to a company under Arizona’s community property law during a divorce, the first step is discovery, which begins after one spouse files a divorce petition and the other spouse files their response. Both spouses must fully disclose their assets. When one or both spouses own a company, the company must undergo a valuation. A professional valuator determines the company’s value based on its current market value relative to similar companies sold in the area, based on its total assets, or the value of its profits, income, and anticipated future income.
To prepare your company for this process, requires first determining which of the following approaches you’ll take to distribute your spouse’s share:
Typically, the option of continuing to co-own a company is only viable if both spouses are willing to communicate and compromise effectively as they move forward after the divorce.
When one or both spouses own a company, preparing the company for divorce often involves extensive negotiations and mediation sessions. In the best-case scenario, the divorcing spouses are able to reach a settlement agreement on how to handle the company after their divorce is finalized. A judge typically signs the settlement agreement into binding orders, as long as it meets the court’s requirements for a fair and equitable division. If the spouses are unable to reach a settlement agreement, the divorce becomes contested, requiring the spouses to present their dispute to the court for a judge to decide.
