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With divorce rates skyrocketing, divorce itself is almost no longer a what-if scenario and is instead becoming when. In addition to the psychological pain that many will go through, the process of splitting property can and will be extremely stressful.
This is especially true when one or both spouses own a business that is eligible of being divided during a divorce. During the normal course of a divorce, property such as homes and vehicles are equally distributed amongst both spouses and this division is usually fairly simple, the process becomes far more complicated when a business or LLC needs to be divided.
Division of Property in Arizona
Arizona is a “community property” state, meaning that all property and assets, except for inheritance or gifts, obtained by you or your spouse during the extent of your marriage belongs equally to both parties when you divorce. Seeing as all property and assets purchased during a marriage would have been for the betterment of both spouses, it is then only fair that should a couple decide to divorce, they then split their communal properties equally amongst each other.
One of the most difficult but important processes to occur during a divorce is the splitting of marital property. It is during this time that the court will determine which properties are community or separate as well as the overall value for all of the properties combined which will then be used to determine how they will be divided amongst the spouses.
The list of items which are considered to be community property is quite extensive and the list would be hundreds of pages long if each item were to be listed. Therefore it is much easier to list what is not considered to be communal property and you can then use the list to determine if your asset is considered to be communal property.
- If the property was inherited by one of the spouses
- If the property was owned by a spouse before the marriage began
- If the property was gifted to the spouse
It is extremely important to correctly know which of your properties are considered to be community or separate as failure to correctly designate a property means that one spouse may unequally get more than they legally deserve. If you are unsure as to what your property is considered, a divorce lawyer can assist you in this process.
Division of Income in Arizona
Arizona’s community property rules allow for the equal division of property and assets amongst spouses. Marriage is viewed as a “team” and wherein one spouse may have been the sole provider while the other stayed home and took care of the kids, they are both equally deserving under the law when it comes to splitting property.
Since marriage is a team effort and all community property will be split amongst the spouses in a divorce, income in the bank as well as items purchased with the income are considered to be community property and not the separate property of the spouse who brought home the most money. This means that during the course of a divorce, the court will have access to all bank accounts and they too will be equally split amongst the spouses.
Often during the splitting of property, the court will also determine one spouse to be in need alimony(spousal maintenance). This spousal maintenance is to help a spouse get on their feet and will not come from the property being divided rather it will instead need to be paid to the spouse from future earnings.
Division of Property When a Spouse is Self-Employed
Community property includes many common things such as bank accounts, houses and furniture but it also includes a business or LLC that is owned by one or both of the spouses. Continuing with the common theme of all community property being subject to being equally divided, both a business and LLC can be included when the court divides property amongst spouses.
A business or LLC can be determined to be community property if it was formed during the course of a marriage; if the business was formed before the marriage or inherited/gifted it will not be considered community property. But, even though a business or LLC may not be considered community property, the revenue from the business will be and it will be divided during a divorce.
Splitting a Small Business During a Divorce
If the business is community property, the process of equally splitting up the business can often be extremely challenging and tedious as it will involve appraisers and accountants determining the overall value of a business and all of the items it owns. Once a valuation has been made the business may be sold and the money made will be split or the easier way will be to have one of the spouses buy out the other’s interest in the business.
Once both spouses and their legal counsel agree on an appraiser’s valuation, one of the spouses can buy out the other spouse’s portion of the business. This means that if a business has an appraised value of $500,000 each spouse is entitled to $250,000 and if a spouse wishes to keep the business running they will need to pay the other spouse the $250,000.
FAQ About a Self-Employed Spouses and LLCs During a Divorce
The following questions are a few of the most common questions that are asked about splitting income of a self-employed spouse in Arizona:
Q: How is income divided in divorce?
Income is considered community property under Arizona law, therefore all income whether it be in bank accounts, investment portfolios or even retirement funds will be equally divided between the spouses during a divorce.
Q: Is an LLC divided in a divorce?
If the LLC was formed during the course of a marriage it is considered to be community property and it may be divided under the court’s discretion during a divorce.
Q: Is a business considered community property?
A business is considered to be community property if it was formed during the marriage. If the business was formed before the marriage it is considered separate property.
Q: How do I protect my business or LLC from being divided during a divorce?
The best way to protect a business or LLC from being divided is to clearly label it as “separate” property before getting married. If you form an LLC during a marriage, it is community property.
How to Protect Your Arizona Business in a Divorce
Going through a divorce is a strenuous trial that almost 50% of all married couples are going through. Ranging from the emotions stemming from separation, or the stress from splitting everything you own, even the business you worked so hard to create and run.
Whether it be obtaining a divorce decree or an accurate appraisal to protect your business from closing down and being divided between you and your spouse, a compassionate yet aggressive divorce lawyer is ready to help.
Call the Family Law Team at (480) 467-4348 to discuss your case today.
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