If you’re considering divorce, one thing that may be on your mind is what will happen to your family business or professional practice. How will your divorce affect that business? Will your spouse be entitled to half its value? Will you have to sell the business?
In Arizona, part of the issue will be how much of the company qualifies as your sole and separate property, which is not divided. This depends in part on how much involvement in the business your spouse had during the marriage.
Your spouse may not have been involved at all. Or, your spouse may have had some involvement, such as running the office or keeping the books. Or, your spouse could be equally or even more involved than you are.
Assume for the moment that your spouse was never involved in the business at all. That does not mean that your company is your sole and separate property, although much of it may be. The court could consider, for example, that the growth of your business during the marriage is partly attributable to the support you received from your spouse.
In most cases, at least some of the business will be divided. In Arizona, the portion of your business that is part of the marital estate is to be divided equitably.
What are your options for division?
First, if you have a valid prenuptial agreement, it may control how the business is divided.
Next, be aware that most divorces are negotiated rather than put before a court. You do have to divide your marital property equitably, which basically means fairly, but that does not mean everything has to be split equally. If one of you was much more involved in building the business, it’s probably fair for that person to receive the lion’s share of the business’s value.
There are three basic ways this can be done:
Buyout: the spouse who wants to keep the business buys out the other spouse’s equitable share
Full sale: in some cases, it makes the most sense to sell the business outright and then divide the proceeds equitably
Continued partnership: If you can get beyond your marital problems and still remain good business partners, you could continue to run the business together
No single approach is right for everyone. Selling a business can take time and can depend on the volatility of the market. Buying out your spouse may require you to sell off other assets. A continued partnership may simply be unrealistic if trust has broken down between you.
Your divorce lawyer can help you get a proper valuation and determine the shares each spouse should receive.