If you’re a startup business owner and considering a divorce, you may worry about how this decision might impact your enterprise. For example, you may wonder if you don’t have a prenup in place, would your spouse receive ownership of half of your business? And what about the business’s future? Does my spouse own half of my Scottsdale startup’s growth? The good news is that there are steps you can take with the help of a family attorney to protect your business.
Understanding Arizona Community and Separate Properties Laws
One of the most important things for business owners who are planning to get married to know is that Arizona is a community property state.
Under Arizona Revised Statutes Section 25-211, Arizona divorce laws state that any assets, such as a business acquired during the marriage, can often be considered to be jointly owned by both spouses.
That means if you decide to divorce, a divorce judge in Maricopa County Superior Court will attempt to split everything between both spouses as equally as possible.
With a business considered community property, your division options generally include:
- Selling the start-up company and splitting the profits.
- Buying out your spouse for sole ownership.
- Co-owning the business with your spouse after the divorce.
If you or your spouse owned the business before tying the knot, then the organization is considered separate property under Arizona Revised Statutes Section 25-213.
However, if you commingle any income from your startup business into your joint finances, or your company increases in value, that is usually considered community property and would be split fairly during a divorce.
And if your spouse helped contribute to the growth of your start-up, they may also be entitled to a share of your business’s future income.
How Can I Protect My Startup Business During a Divorce?
Thankfully, a Scottsdale family attorney can offer some key strategies that can help protect your startup business in the case of a divorce.
An excellent way to protect your business ownership is to hire a family lawyer and establish a prenuptial agreement before getting married, or a postnuptial agreement after your marriage that states the business is solely your property.
This allows you and your spouse to legally state that your business and its earnings started before your marriage, and they and their earnings should remain separate property in case you decide to separate.
If there’s no prenup or postnup in place, there are ways in which you can prove to a judge that the business and its value and income should be considered separate property. These include:
- Maintaining precise, up-to-date business records that clearly show when your startup was established before your wedding date.
- Hire a professional to determine the full value of your business before marriage.
- Never commingle earnings, income, or debts from your company with, for example, the joint bank account you hold with your spouse. Keep updated bank records to show bank accounts and accounting is separate.
- Pay yourself a competitive salary from your startup for work you do during your marriage. Giving yourself too low a salary or no pay may urge a judge to consider the business community property.
- Consider incorporating your business under Arizona business laws.
- Greatly reduce your spouse’s involvement in the business, which can show you had more to do with its growth than they did.
- If your spouse is to continue to receive business earnings after your divorce, make sure to keep excellent records to show you are paying them their fair share in case they decide to dispute it in court.
FAQs
How Is a Business’s Value Determined for a Divorce in Arizona?
In a divorce in Arizona, a business’s value can be determined by hiring a forensic accountant or other business accounting professional. The accountant will determine the company’s fair market value through the value of all its assets. Assets can be either physical, such as equipment and inventory, or non-physical, like patents, trademarks, and copyrights.
The fair market value also considers its past and current earnings, projected future income, and how it compares to the selling prices of similar businesses.
Can I Offer My Spouse Other Assets to Keep My Startup in Maricopa County?
Yes, you can offer other assets to your spouse during a divorce to keep your business in Arizona. For example, you may offer your spouse ownership of a home, vehicle, or vacation home, or greater access to retirement accounts, in exchange for keeping ownership of your startup. An accounting professional can provide a fair market value for your business so that the assets you offer your spouse are equivalent to your business’s value.
Will My Spouse Still Get Part of My Business in Arizona if I Inherited It?
No, in most cases, your spouse will not get part of your business in Arizona if you inherited it. Inherited businesses are generally considered separate property, and not community property during a divorce. However, if any income from your business was commingled with your joint finances, or the company became very successful during the marriage through both your efforts, then that becomes community property that your spouse will likely be entitled to.
What Mistakes Do Business Owners Make When Getting a Divorce in Scottsdale?
There are several mistakes many business owners make when filing for divorce in Scottsdale, Arizona. Some of the main mistakes business owners make are improperly valuing their business and not thinking about the tax implications of selling or transferring business ownership. +
Other errors company owners can make are hiding income or assets to make the business look less profitable, and letting emotion get in the way of making correct decisions for you and the future of your business.
Protect Your Business’ Future — Hire a Family Lawyer in Maricopa County Today
Divorce is hard on everyone, and especially business owners. About one in 20 business owners has had to close their doors because of the financial hit they experienced during their divorce.
Don’t let you and your startup be part of that statistic. Call Ellsworth Family Law, P.C. today to learn how our team can help protect your business before you say, “I do,” and advocate for your business ownership rights during your divorce.
