If you are planning to end your marriage in the near future, the divorce process will present multiple financial issues you must address. Divorce can be difficult for anyone regarding the economic factors involved, but it can be especially trying for business owners. It’s essential to do everything you can to protect your business from your divorce proceedings, but it’s vital to understand that you may be limited in this regard. Depending on when and how you created your business, it may qualify as divisible marital property in your dissolution proceedings.

One of the best things any business owner can do at the outset of their divorce is to consult an experienced attorney as soon as possible. A good divorce attorney can help a business owner determine whether their business qualifies as marital property or separate property. Depending on the unique details of your situation, you may have more options for resolving the situation than you initially realize.

Tips for protecting your business in divorce

Property Division in Divorce

Every state has different property division laws that come into play in divorce proceedings. Most US states enforce equitable distribution statutes, aiming for the fairest possible division of marital assets in divorce by assessing numerous financial factors between the spouses. While community property laws require a strict 50/50 division of all marital assets in a divorce, equitable distribution is more flexible. While the result of an equitable distribution determination may not be exactly 50/50, these resolutions tend to be more realistic and acceptable to the divorcing spouses in the case.

When it comes to your business, it’s essential to determine whether it qualifies as marital property or your individual separate property. Marital property is subject to division in divorce, so you may need to part with some portion of your business assets depending on its property classification.

Whether your business qualifies as marital or separate property typically depends on when and how you started the business. For example, if you inherited a family business from your parents, inheritance qualifies as separate property, so you would likely be able to retain ownership of the business in a divorce. However, if you and your spouse started the business together or started the business while married with some assistance from your spouse, the business most likely qualifies as marital property to some degree.

It’s important to note that your spouse does not need to contribute directly to starting or operating the business for them to have a legal claim to some portion of the business’s value in divorce. If they helped you secure financing to start your business, provided household services that enabled you to focus on the business, or otherwise assisted in your ability to run your business, the business is likely subject to division on some level in divorce.

How to Divide a Business in Divorce

If your business qualifies for division in divorce, there are several methods for resolving this issue. First, if you and your spouse are co-owners of the business, one of you may offer to buy out the other’s share, assuming full ownership of the business. One of you may have no interest in maintaining any involvement in the shared business after a divorce. This can be a relatively straightforward way to resolve the matter of business ownership. However, if one spouse relinquishes their stake in the shared business in divorce, the other spouse must be prepared to compensate them. They must be part of an acceptable amount of compensation for the current value of the business and the future valuation the other spouse would not be able to enjoy after divorce.

It’s also possible to sell the business and divide the proceeds. If neither spouse wishes to continue running the business, this may be the most realistic and straightforward option for resolving property division. In rare cases, spouses who co-own a business may wish to continue operating as business partners after their divorce, but this will typically require some revision to their partnership agreement, individual estate plans, and more complex property division proceedings in their divorce case.

Protect Your Business in Advance

Some of the best available methods for protecting your business from divorce are only available when you first create the business. Specifically, when you start your business, you should ensure that all of your business-related accounts are in your name. Once you marry, if you want to ensure that the business remains your separate property, you must prevent any intermingling of your business assets with personal assets. As a result, you and your spouse may need to maintain separate finances throughout your marriage. While this may seem needlessly difficult at the outset of your marriage, you may find over time that it prevents a great deal of financial insecurity and uncertainty for the future.

You can also protect your business with a prenuptial contract. These agreements allow marrying spouses to stipulate their financial needs, responsibilities, and expectations for their marriage. While many people hold common misconceptions about prenuptial agreements, the reality is that these contracts can be incredibly valuable for business owners and high net worth individuals. Additionally, while a prenuptial contract may not precisely be a romantic subject to discuss with your future spouse, the process of creating the agreement can allow the two of you to have difficult conversations that alleviate financial doubts and bring you closer together.

Divorce is difficult for everyone, and it is easy for anyone to feel lost when it comes to the financial implications a divorce can have for the future. If you are unsure how to approach your divorce as a business owner, it’s vital to secure legal representation you can trust as you navigate this complicated issue. The right divorce attorney can help you approach your divorce with greater confidence and assist you in exploring the options that may be available for you to protect your business from your divorce proceedings. Contact an experienced divorce attorney for the best chance of protecting your business in a divorce. We can help you through every step of the process.