Because Arizona is a community property state when it comes to dividing everything during a divorce, determining the fate of a small business during a divorce can be challenging. Dividing assets in just about any situation gets complicated, but it’s especially sticky when there are so many moving parts, including employees, debts, operating costs, properties, and more. Here is what you need to know about how your business is likely to be handled during a divorce in Arizona.
Is It Community Property or Separate Property?
The first thing to do will be to determine whether your small business would be considered community property or separate property under Arizona’s marital property laws. For assets and debts, Arizona considers anything that was acquired during the marriage as community property, with the exception of any gift to one spouse that hasn’t been added to the marital property. Therefore, any business started during the course of the marriage would be considered community property.
If you started your business before the marriage, on the other hand, it would be separate property, as long as the marriage didn’t contribute to it in any way. Any contributions to the business would mean that you’d have to determine how much your business grew in value during the marriage, and that portion would be considered community property. For instance, if your business made use of the joint accounts in any fashion, or if your spouse could argue that their contributions enabled you to build your business, then at least part of your business would be considered community property.
How to Value Your Small Business
If your business is determined to be community property, in part or in full, you’ll need to figure out a fair value for the business. Often this is determined by analyzing the business’s earning potential, now and in the future. If you started your business, you will also need to look at the business’s earning potential or value when you first married, compared to now. Consult with your lawyer regarding valuing a small business for division during a divorce. It might be worthwhile to have an expert place a value on the business.
Options for Dividing the Business
Dividing a business during a divorce can be a delicate process. In Arizona, community property laws dictate that everything should be divided in half between both parties, which can create strain on both parties during and after the divorce, if the division of the business forces shared interests and continued contact with one another. In many cases, Arizona courts prefer to either divide the community property so that one spouse takes the business and the other is compensated with a greater share of other property. Another option is to sell the business and split the profits between the spouses accordingly..
Avoiding Double Dipping
Double dipping happens when one spouse gets paid twice in the course of dividing the business. For instance, if one spouse is paid half of the business’s value based on potential income, and also receives child support and spousal maintenance each month based on the same income figures, that spouse is getting paid twice on the same math. Both parties will need to work together in mediation to find a solution that is acceptable to both sides, or go to court and let the judge decide what is fair.
The Role of Legal Representation
With Arizona’s community property laws, divorce can be tricky when you’re trying to divide a small business. In these cases, it’s more important than ever to have an experienced divorce attorney to represent your best interests. For more information about how your small business could complicate your divorce, contact the Simon Law Group today.