Business and Partnership

When both spouses are in business together or one spouse owns a business, the property division can get complicated. In the cases of closely head businesses and partnerships, it will take special legal, accounting and tax expertise to make sure there is an accurate and fair property division. Frequently in these cases, one or both spouses will be the owner, director, primary shareholder, managing member or partner in a small or medium sized business.

Scottsdale Business Division and Divorce Attorney

The Daly Law Firm assists clients with all part of their divorce including the division of businesses and partnerships. For the business owner, a divorce can be both a personal and financial lost. It is important to get an experienced attorney who can help divide up the business interests involved in your marital estate. Contact Doug Daly at (480) 607-8308 for a free consultation regarding your business division.

Forms of businesses

There are many different options for starting a business. Small business owners usually create closely held businesses. Closely held businesses can take the following forms:

• S or C corporation
  • An S corporation is set up like a corporation for tax purposes. The shareholder in an S Corporation report the income and loses on their personal tax returns and are assessed tax at their individual income tax rates so an S corporation avoids double taxation.
  • A C corporation pays federal and state income taxes on earnings. When the earnings are distributed to shareholders as dividends, the income is taxed again as part of the shareholder’s income.

The corporation form makes sense for some business owners even if they are not the size of a mega corporation because there are some tax benefits. More importantly, the business owner is shielded from personal liability if the business is set up like a corporation.

• Limited Liability Company (LLC)
  • An LLC combines corporations and partnerships into another business structure. Typically an LLC allows the business owner to be shielded from liability while allowing the flexibility to manage the business like a partnership without all of the structure required by the corporation structure.
• Limited Partnership (LP)
  • A LP has one or more general partners who manage the business and are responsible for all of the legal debts of the business. In addition there are one or more limited partners that are only liable for their own investment into the business.
• Sole Proprietorship
  • With this business model the owner and the business are the same entity and the business owner has all the responsibility for the company’s debt, but at the same time the owner gets all the company’s profit. Most people do not do sole proprietorships now because the owner would be personally liable for all the debts of the business. It is better to have an LLC where you are protected financially, but you still have a great deal of control over the business.

Things to Consider in Business Asset Division

In order to divide the business, the attorney needs to determine whether the business is separate or community property. Once that determination is made, the attorney needs to determine how much the business is worth. The following list of documents can help the attorney and other financial advisors accurately ascertain how to divide up the business:

• Profit and Loss Statements
• Balance Sheets
• Review of Business Finances
• Net Income versus Gross Income
• Allowable Expenses

It is vital for a business owner to keep documentation such as internal minutes, ownership certificates, shares, contracts and agreements made by the business entity. If not properly documented, the division of the business will not be completed and there will be continuing conflict between the parties after the divorce.

Types of Business

Different types of business have different types of assets. If it is a business like manufacturing then there is the office furniture, manufacturing equipment and the physical building. Service businesses like restaurants and professional practices have supplies and they also have an intangible quality called “good will.” A restaurant gets a reputation for good food and service. A doctor’s office gets a reputation as being good if the patients like the doctor and get accurate diagnosis and treatment. It is difficult to put a value on the good will component of a business. It is important to have additional financial advisors and business evaluators come in with expertise on valuing all aspects of a business. Typical businesses that are subject to division during a divorce include:

• Law Practice
• Physician Practice
• Restaurants
• Service Industry
• Manufacturing

Breaking up a Business

Sometimes the business cannot stay intact after a divorce. The most equitable way to handle the business is to break it up and each party take a fair share of the value of the business. This can be a complicated process where experts are necessary to determine the worth of the business and the break-up value of the business.

Remember the break-up value of the business could be less due to outstanding debts that would need to be cleared up and paid. In breaking up any business people get reimbursed or paid in a certain order called priority. Creditors typically get paid first then investors then whatever profit is left over goes to the partners.

Make sure to get competent legal and financial advice before breaking up a business.

Daly Law Firm, PLLC- Phoenix Business Assets and Divorce Lawyer

If you are a small business owner going through a divorce and your business assets are in dispute it is essential to get help from an experienced Scottsdale divorce lawyer. You need to guarantee that someone advocates for your rights in the divorce and will make sure your business is protected. If you are contemplating a divorce in the Phoenix, Scottsdale, or the Maricopa County area, don’t hesitate to call The Daly Firm at (480) 607-8308 for a free consultation to answer your questions and concerns about small business valuation and division.