COMMUNITY EQUITABLE LIEN ON A SOLE AND SEPARATE BUSINESS

COMMUNITY EQUITABLE LIEN ON A SOLE AND SEPARATE BUSINESS

Under Arizona law, generally a business or interest that you have in a business that you acquired or owned prior to the marriage is your sole and separate property and continues to be so even during the marriage absent any unusual or unique circumstances.

In the simplest terms, this means if you owned your business or practice prior to the marriage, you continue to own it and your spouse has no legal ownership claim to it.

That’s the good news, BUT (unfortunately, there also seems to be a “but” when you are working with lawyers)…

The marital community (and your spouse by virtue of them being one-half of that community) may still have a legal, equitable interest in or lien against your business regardless of whether it is your sole and separate business which they have no actual ownership interest in.

In general, under Arizona law, all efforts made by either spouse during the marriage are presumed to be for the benefit of the marital community. So, your work, time and sweat that you spend in your sole and separate business to operate it and grow it is considered the “community’s time” – think of it as analogous to the scene in the movie Fast Times at Ridgemont High when Sean Penn’s surfer character, Jeff Spicoli, orders a pizza for himself and has it delivered in history class and the teacher tells him that the rest of the class is entitled to a slice of the pizza as it is “our time” so everyone is entitled to share in a pizza ordered on “our time” together.

If the business has increased in value:

The equitable interest or lien on a sole and separate business will only apply if there has been an increase in value of the sole and separate business during the marriage. Any increase attributable to the “community efforts” will be allocated or apportioned between the two spouses in a divorce. Rueschenberg v. Rueschenberg, 219 Ariz. 249, 254, 196 P.3d 852, 857 (App. 2008). Click here to read Court’s Opinion

If the business has been stagnant or decreased in value:

If the business has remained stagnant or actually decreased in value, there is no community lien. Using our pizza analogy above, if you came into the marriage with a single slice and you still have a single slice at the time of divorce, it’s still all yours and you don’t have to share any of it with your soon-to-be ex.

As you can imagine, issues regarding whether one spouse’s sole and separate business has increased in value over the life of the marriage and calculating the portion of any such increase attributable to “community efforts” are hotly contested, the subject of extensive argument and expert testimony during the divorce case, and can be extremely time-consuming and expensive.

An experienced attorney well versed in Arizona law on this topic can be invaluable in saving you not only time but money on this issue by guiding you to the right experts, countering the other side’s arguments, and achieving an appropriate resolution to the case.

Going through a divorce when you or your spouse have your own business can be complex and nerve-racking. Having an attorney who is experienced in dealing with these complicated issues is essential to protecting both the business and your peace of mind. If you would like to work with one of our experienced divorce attorneys, please call OWENS & PERKINS at480.994.8824 to schedule your free 30 minute consultation.

Categories: Family Law, Divorce, Blog

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