Kimberly Staley
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What happens to the family business when the owners divorce?

Divorcing couples in Arizona confront a variety of issues during this difficult process. Those who have built and operated a family business over the year must also deal with the way Arizona's property division principles can affect its future.

One major legal rule affecting divorce is the state's community property approach, which assumes most property acquired during the marriage belongs equally to both spouses and therefore gets divided equally upon divorce.

Joint ownership not practical for most

However, Arizona courts will usually not simply split the business by awarding each spouse half of the interest and have them continue to operate the business together. This is true even when the business definitely belongs in the category of community property. Thus, in most cases one spouse retains ownership and buys out the other spouse's share, either through a payment plan or crediting them with a marital asset of equivalent value.

Getting an appraisal

An important step of handling a family business in a divorce is getting a comprehensive and accurate business evaluation and appraisal. There are many factors that can affect a business's market value, including the value of inventory, goodwill, previous financial record and far more. Appraisers may use various methods to assess value and determine if any applicable discounts may diminish it. This will help establish how much will be due to the spouse who cashes out.

Can you sell and split the proceeds?

An alternative to this approach is appraising the business, selling it and dividing the proceeds between the spouses. However, not everyone would find this an acceptable alternative.

Community share in separate businesses

In some cases, one spouse starts a business prior to marriage but sees an increase in value during the marriage. Generally, the business itself would not be community property. Rather, there may be a community lien for value increases and profits accruing during the marriage; this amount would be divided between the spouses.

Get advice for your specific situation

The above general principles may not necessarily apply to the circumstances of your business. Discussing your case with an experienced attorney can help you make informed decisions that are right for your divorce.

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