An Honest And Smart Approach To Family Law

Protecting a family-owned business in a high net-worth divorce

Family-owned businesses are a strong part of Arizona’s economy. Many family-owned businesses have been around for several years and families count on the business to keep running smoothly after they are gone.

Unfortunately, married couples who run a family business together face some particular challenges and sometimes these challenges result in divorce.

A successful family business, combined with other valuable assets, could make the divorce a high net-worth divorce. The family business must be considered along with other assets as part of the property division. This means that a high net-worth divorce that also involves a family business can quickly become complex.

The effect of a divorce on a family business can be serious. Careful planning and flexibility are necessary to protect the family business and ensure its continued success post-divorce.

Ideally, married couples who co-own a business have a pre-nuptial agreement that specifies which property is community property or separate property. In Arizona, community property is property acquired during the marriage, with some exceptions. Only community property is split during a divorce.

Obtaining an appraisal

If you do not have a pre-nuptial agreement, there are other options. Your first step should be obtaining an accurate appraisal. It is likely that you and your spouse have different opinions on the value of the business.

This is fine, because it is reasonable for people to have different opinions on value. But if you cannot agree on the value, it is best to have an objective appraisal done by a neutral appraiser.

You and your spouse can agree on an appraiser to use, but if you are worried that you will disagree on the appraiser’s value, you can each get your own appraiser. Generally, when two appraisals are done, being flexible and compromising on a number between the two appraisals is the right solution.

The only other option is to present both appraisals to a court and let a judge decide, but that often yields a worse result. A judge will not have the same knowledge and experience as a business appraiser.

Sell or keep?

When an appraisal number is set, it is time to decide what will happen to the business. You and your spouse could always agree to sell the business and split the proceeds as part of a divorce, but this is rarely a feasible solution when the business is family-owned.

Chances are, both of you want to keep the business in the family somehow rather than sell it to a third party.

Another option is for one spouse to keep running the business and buy out the other spouse’s share. This can be a good option when one spouse played a large role in the business while the other spouse’s role was minimal.

Arizona’s community property laws require an equal division of community, or marital, property. If one spouse buys out the other’s share in the business, the payment must be equal to the value of the business after the buyout.

A buyout can sometimes be avoided by allowing the spouse leaving the business to receive a greater share of other community assets, such as a home, bank account or retirement account. The goal is an overall equal share of all community property.

Run the business together

If neither of you can bear to leave the business, you may choose to continue running the business together post-divorce. While legally this is an option, you should carefully consider if this is best.

Emotions tend to run high during and after divorce, even if the divorce is amicable, and trying to run a business together could end up hurting the business.