As a business owner you have a lot to worry about but how a divorce may affect your business shouldn’t be one of them. Whether your business is big or small, its interests are tied to you and when you get married it becomes tied to your spouse as well.
When was the business formed?
If a business was formed during your marriage, it’s considered community property in Arizona. This means your ex-spouse has a right to a part of the business. You may have options for how it is split—or if it is split.
If the business was formed before the marriage happened or if it was inherited, like a family business, then it would not be considered community property. The exception to this is if your spouse contributed to the business during your marriage, adding value that the company benefits from today. It will be up to a court to decide if value was added and how much of the value of the business your ex-spouse can receive.
Things to consider
When you’re getting ready to finalize a divorce and considering splitting a business, there are several things a court will consider. A business is rarely split 50/50 as it’s a complicated asset to divide.
It’s important to have your business valued by a competent and fair appraiser. They’ll need to review balance sheets, contracts, invoices and all the business financials. Your appraiser should submit their reasoning for the value they have claimed to your attorney so your attorney can clearly argue the value in court.
An appraiser should also consider any liabilities the company has. Significant debt in a business will lower the value and add an additional layer of complexity.
You should also be prepared to share how much each spouse has invested in the company. If the business was started with your ideas and your investment of time or money, you may have a greater claim to the business. If your spouse entered the business later on but contributed in a significant way to its success, this should be noted.
If your company has investors, partners or other owners, their interest in the company should also be kept in mind. The value of the portion they own is important for the court to consider.
How to prepare
The best plan of action to protect your business is to think in the long term. No one likes to think about their marriage ending before it even begins, but a thorough pre-nuptial agreement will give you peace of mind when it comes to your business. A post nuptial agreement can be just as effective for protecting your business. If you don’t already have an agreement, it’s a good idea to sit down with an attorney you trust and get it down on paper. Both parties should have their own attorney review the document before it is signed, to ensure it will hold up in court
What are your options?
If your divorce is happening and you’re worried about your business there are a few options to consider. The first is a buyout. If you don’t think it’s possible to continue a working relationship with your former spouse, then paying them directly for their portion of the business may be the easiest way to sever ties. You can work out the details of a buyout during divorce proceedings, trading interest in the company for other marital assets.
Some businesses can be placed in a trust to be protected from divorce. If a business is placed in a trust it’s not technically marital property as it is no longer owned by you and is being held for the beneficiaries of the trust. This is a tricky legal maneuver and may not make sense for your business.
No matter the choice you make it’s important to do it with a trusted attorney by your side. Do not attempt to divide something as important as your livelihood without the input of a professional. At Pangerl Law Firm, we are here to help you with these complex issues.