Business interests are assets that require special treatment in a divorce. Arizona follows a community property system, which means that most assets acquired during a marriage are deemed equally owned by both spouses and thus subject to division. However, business interests present unique challenges and require special attention to protect them from unfair division.

Here are scenarios in which community property law might call for division of a business interest:

• Business started before the marriage — There is a rebuttable presumption that a business you started before your marriage is your separate property. That means it’s most likely protected from division but your spouse might still raise a challenge. The key issue is whether the business’s value increased during the marriage and whether that increase was due to the efforts and/or financial resources of both spouses. If so, the value increase is treated as community property and your spouse is entitled to a share, though the business itself remains your separate property.

• Spousal contributions to the business — Your spouse might have been involved in the business, either through direct involvement, financial investment or running the household while you focused on running the store. If so, he or she might be entitled to a portion of an increase in the business’s value and possibly a share of the business ownership. during the marriage. The court will consider the value of the business at the time of marriage compared to the value at the time of divorce. The type and degree of the spouse’s involvement will bear on their compensation.

• Co-ownership with your spouse — If your spouse co-owns the business with you, the question becomes whether or not the business will be sold and the sale proceeds divided. In many cases, one spouse prefers to keep the business while offering other assets of equal value to the other spouse. For example, you could negotiate to buy out your spouse’s interest in the business, either through a direct cash payment or by agreeing that your spouse will receive a greater portion of other marital assets, such as the family home or retirement accounts. Negotiating a buyout avoids the disruption of selling the business or attempting to co-manage it post-divorce, which can be complicated and impractical.

Whether you are determining the community property portion of the business, debating the relative contributions of your spouse to the business or negotiating a buyout of your spouse’s ownership share, an accurate business valuation is a critical part of reaching a fair and equitable resolution during your divorce. A qualified business appraiser can assess the business’s worth based on various factors, including income, assets, liabilities and market conditions. A divorce attorney skilled in protection and division of business ownership interests can be instrumental in making sure a fair and accurate valuation is obtained.

The attorneys at Clark & Schloss Family Law, P.C. in Scottsdale, Arizona work to protect business assets during divorce. To schedule a consultation with our firm, call 602-789-3497 or contact us online.