When divorcing spouses have equal ownership in a business, yet do not want to stay in business together once their dissolution is finalized, what happens to the business? In a state like Arizona, which recognizes community property law, parties to a divorce have a couple of different options if they own a business together.
Option #1 – One spouse becomes the sole owner of the family business, and in exchange, the other spouse assumes ownership of the marital residence and pension plan.
Option #2 – In exchange for sole ownership of the family business, one spouse “buys out" the other spouse by paying them half of the business’ value.
Option #3 – If they are confident that they can get along in a business setting, divorcing spouses can both decide to keep their ownership of the family business.
It is important to note that while option #2 is often the best option, it can also cause lots of issues if the buyout is not handled properly. Figuring out the fair market value of a family owned business in an Arizona divorce case is a very complex process. The best way to handle the buyout of a spouse is to enlist the help of a certified public accountant, business attorney and divorce attorney. Therefore, Arizona business owners going through a divorce should look for full service law firms that can offer them access to attorneys with different backgrounds.
If option #3 is selected, and each spouse wants to hold on to their 50 percent ownership of the business post-divorce, it is critical for the final agreement to include some sort of buyout provision. This can serve as valuable protection against any future issues. If the 50/50 business ownership plan doesn’t work out as planned, a buyout agreement can mitigate any complications and will also protect the business from crumbling if disagreements arise.
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