If you are divorcing and you or your spouse own a business, it is important to be aware of the concept of “double-dipping” as it applies to asset division and spousal maintenance awards.
Because Arizona is a community property state, if a business was started - or if the value increased - during a marriage then it will likely need to be valued during the divorce proceedings and a portion of that value will need to be paid out to the other spouse not involved in or keeping the business. (For a discussion of different valuations methods for businesses, see our blog series from July, 2017.)
In a case where there is both a business to divide and the non-owner spouse qualifies for an award of spousal maintenance, you want to make sure both your attorney and business valuator are cognizant of the issue of “double-dipping”. This is where income derived from a business is counted twice - first in valuing and dividing the business itself, and then again in calculating income for a spousal maintenance award. Is this equitable? Is there an argument to get around it?
The answer, of course, is that “it depends.” First, it is important to note what type of valuation approach the business valuator is using - income, asset, or market value. Is the evaluator including an estimate of goodwill in their evaluation? Are they using the owner’s actual income or the average income of a non-owner professional with similar training and experience? Whatever approach is being used by the evaluator, it’s important that you and your attorney have a good understanding of what has gone into the business valuation is essential to being able to argue what is the proper income should be utilized for a spousal maintenance as opposed to the valuation of the business itself so that you are not overpaying as a result of a “double dip”.
Furthermore, it is also important to note that when determining spousal maintenance, the Court must consider the amount the non-owner spouse will be receiving from the business buy-out. Specifically, A.R.S. § 25-319(B)(9) requires the Court to consider “(t)he financial resources of the party seeking maintenance, including marital property apportioned to that spouse, and that spouse's ability to meet that spouse's own needs independently.” (Emphasis added)
If you would like to work with one of our experienced Attorneys to learn more on this issue, please call OWENS & PERKINS at (480) 630-2464 to schedule your free 30-minute consultation.