Can Your Business Structure “Divorce Proof” Your Assets In Arizona?

by Dec 11, 2020

The end of a marriage is a process, and one that requires quite a bit of preparation and study. Dividing assets is a particularly important aspect of divorce, and can be a bone of contention when the proper protective measures aren’t taken. That’s even more true for when a business is involved. However, understanding the procedures isn’t particularly hard, and this article aims to provide more context and information for business owners going through the process.

First, it’s important to have a thorough understanding of your state’s laws and regulations. As in any other state, the divorce process in Arizona includes a discovery and disclosure step, in which each party completes an Arizona Affidavit of Financial Circumstances and a written statement of explanation. Each party is required to disclose ALL financial information including company assets owned and the like.

This plays a role in determining how the assets are divided once the divorce is finalized. But if you own a company, does that automatically mean your spouse gets half of it? That will depend on your business structure. Below is a brief look at the different business models, and what that can mean for the division of assets in a divorce.

Sole Proprietorship

Put simply, marital property division laws in Arizona also apply to sole proprietorships. According to AZ Central, the main thing you should be looking at is whether you’ve kept business and personal expenses separate. If you’ve been paying for business expenses out of your personal account, then your marriage supported the business, and your spouse could make a claim for a share of the assets.

 If you kept them separate, then the process is much simpler. In a community property state like Arizona, if you established your business before your marriage then it’s your property. However, assets acquired by your business during the course of the marriage are subject to a 50-50 split. Also, if your spouse worked for the business, they’re entitled to some compensation.


Limited Liability Companies (LLCs) are particularly notable for their flexibility and asset protection. LLCs in Arizona aren’t required to file Operating Agreements before doing business. However, it’s generally a good idea to file one in order to clarify the terms of ownership and management.

 Operating Agreements provide additional protection and options for everyone involved. Failure to file one could leave your business subject to Arizona’s default regulations for LLCs, which could end in you losing more of your company than you have to. Again, if you formed your LLC before getting married, it’s generally easier to claim that as your sole property. If it was formed afterwards, however, or otherwise became commingled or a marital property, splitting the assets may require further discussion and documentation.

S Corporation

Because Arizona is one of nine states with community property laws, if you haven’t done any prior planning then assets could be divided between spouses 50-50. An S Corporation is a pass-through corporation, meaning it isn’t subject to corporate taxes. Instead, owners pay taxes at their personal income tax rates.

In the case of a divorce, determining the value of an S Corporation is particularly crucial, especially due to the lack of corporate income taxes. Your attorney should be trained in business evaluations and appraisals in order to ensure a proper division of assets. Your spouse may be entitled to some form of compensation, so a proper appraisal is imperative.

Business Matters

There are well defined but very specific legal matters to deal with when there’s a Business involved. If you need help with this, please call and schedule your complimentary initial consultation with us here at Smarter Divorce Solutions.

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In Your Strategy Session We’ll:
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  • Review your financial situation and explore creative settlement possibilities
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  • Connect you with any other resources you’ll need in your process

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