Divorce is complicated, especially when it comes to dividing assets. This complexity intensifies if spouses jointly own a business. After the divorce, who should get to own the business? Does the other party need to be bought out? Let’s take a closer look at how to handle this tricky issue.
Determining Your Business’ Value
When both spouses jointly own a business, it must be necessary to have a business valuation to determine its worth. This will be important for either negotiating a divorce settlement or taking the matter before an Arizona family law court.
A business valuation will include the following considerations for an accurate appraisal:
- Physical assets and/or inventory
- Cash flow
- Overhead costs
- Appreciation and/or depreciation of business equipment
- Brand reputation
- Customer satisfaction
Arizona’s community property distribution laws will also impact your business valuation. You will be able to have a better assessment once all information is gathered.
Arizona is a community property state, meaning marital property is owned equally by both spouses. However, a jointly owned business may not be divided 50/50. This is especially true if one spouse made far more contributions to the business, or if a spouse already owned some or all of the business assets prior to the marriage.
In some instances, an Arizona court may even be legally prohibited from splitting the business in half between the spouses. This is often true if the jointly owned business also has other owners or business partners whose legal interests would be impacted by a 50/50 division.
The exact method for dividing the business will depend on a wide range of factors, but a complete 50/50 split is quite rare. It is more common for the spouses to agree to a buyout option or an offset.
Buyout vs. Offset
A buyout option will let one spouse buy out the other spouse’s business interest. The amount and terms agreed to will be based on the business valuation.
Alternatively, the parties can agree to an offset, which lets one spouse keep the entire business, while the other spouse receives other marital assets in exchange. This is a good option when one spouse has a far greater interest in running the business.
However, if both spouses expect to remain amicable, it is possible for both parties to retain their ownership in the business and negotiate their business interests.
In short, the path toward dividing the business is negotiable, at least if both parties can reach a settlement without going to court. This complex issue requires an experienced family lawyer who can protect your interests.
Contact us today at Hallier Stearns PLC for more information on how to navigate a divorce involving a jointly owned business.