Business Community Property, What You Need to Know

In a collaborative divorce, determining a fair division of assets can be complicated. You want to be fair to each other. But part of that means figuring out what assets are really worth. A company, for example, is complex to value. You will divide business community property differently depending on a number of factors.

The process you follow helps you work through these issues and reach an agreement. Understanding your rights to interest in property can help you cooperate and get to the right place.

Businesses Formed Before Marriage

Arizona is a community property state. This means, if you form a business before you marry, it may not be entirely a community property. However, if your spouse adds value to the business, he or she has a right to part of that business, since it is community property.

If the business is a community property, the courts will look at actual contributions, from the investment of both time and money. Your spouse may handle work that allows you to focus on the business, which could be considered a time investment from them.

Without a prenuptial agreement, it’s up to the courts to decide how much of the business you are each entitled to. Frankly, there is no protection for your business during a divorce without a prenup.

Business Formed During Marriage

If you formed a company during your marriage, the business will be considered community property. Your investment came from resources that belonged to both of you. You need to assess the value of the whole business to determine the value of the community property.

You will still look at individual contributions each of you made along the way. In addition, any agreements used to form the company matter. The business community property includes many pieces:

• property
• equipment
• patents
• trademarks
• contracts
• goodwill

You will hire an expert to assess what all of this is worth. You then need to reach an agreement that works for both of you.

Agreements that Affect Business Community Property

You can have agreements in place to limit this. A prenuptial agreement, for example, can limit your spouse’s rights to the business. You can also have corporate agreements that limit or prevent transfers of ownership. On the other hand, agreements can also assign ownership interests to your spouse. You need to look carefully at what you have in place.

Getting these agreements in place early on can go a long way to protect you and the business. You should work with experienced attorneys to set your business up to last, even if your marriage does not.

Business Community Property and Collaborative Divorce

If you do not have your spouse’s interest or limits on it defined, dividing assets gets complicated. This is a place where a collaborative divorce can benefit both of you. You want to be fair to your spouse. But selling off business assets to pay for the divorce settlement does not help either of you.

When you approach the process openly, you can work through this. You appreciate your spouse’s support that let you build the business. In turn, he or she respects the work you have put into making it work. It can be hard, but you can fairly identify the value of your business community property. Collaborative divorce can help keep your business out of litigation and keep it going for the long run.

Start Out With The Right Protection

If you’re getting married and already have an established business it may be time to consider protecting what you’ve built. You need to speak with an attorney with experience in both business agreements and marital agreements to make sure you’re fully protected.

At Ogborne Law, we have the experience and the team to walk you through this process. No one ever plans on saying “I don’t” but if it happens, you’ll be glad you took the time to protect yourself, your business, and your employees. Call us for a consultation to learn how we can help keep you protected.