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Divorce and Business Assets – Dividing a Business in a Divorce

 

Being a business owner is quite difficult, especially given the current world situation. However, being a business owner and going through a divorce is difficult and very stressful!

 

If you don't know the ins and outs of family law, there's a chance that you'll be left without parts of your business. At the same time, people on the other side of the divorce who don't have professional family law attorneys by their side might miss some significant benefits.

 

Given the above, let's look at how the division of a business and its assets occurs during divorce!

 

Marital Property or Separate Asset?

The first thing to determine is whether the business itself is marital property or a separate asset belonging to one spouse. The trick here is that some states come with different laws regarding this matter, and you should inform yourself before assuming what type of property the business is.

 

  • If one of the spouses owned the business before they got married, then the business cannot be considered marital property. This is the basic rule that is valid in most, if not all, states.

 

  • However, the above implies that the owner also kept the business separate during the marriage in some states. If the business was kept as a separate entity and wasn't commingled with the spouses' bank accounts or other marital property, it remains a separate asset.

 

  • One can also prevent the business's division if they get their spouse to sign a pre- or post-nuptial agreement. The same applies when businesses are registered as a partnership, LLC, or put in trust, depending on the state.

 

  • It is also worth mentioning that business assets owned by the company itself and not by the owner spouse are not subject to division. On the other hand, the company's residential property but used by the spouses may be seen as interest and taken into account during a divorce.

 

The points above imply that the business won't be divided during a divorce, and the initial owner will retain full ownership over its assets and so on. 

 

When is a Business and Its Assets Divided?

Once again, depending on the state, a business will get divided if:

 

  • The business is started/founded after its owner gets married.

 

  • The business has seen major contributions coming from the spouse that is not the owner of the business.

 

  • The business assets have been commingled with assets and accounts that were marital in nature. 

 

In case one of the above happens, then the business will be considered overall marital property. For example, if your spouse brings contributions to one of the business' parts/sectors – branding - they are not entitled only to that part or to its value.

 

Once the business becomes a marital asset, the other spouse is pretty much entitled to the same value/share as the business owner.

 

The Bottom Line

In the end, if the business is kept separate from your marital assets, then your wife or husband does not have any claim on it. There are also some interesting peculiarities.

 

For example, if you inherit the business while you are married, it will not be considered marital property. Given this, it is always better if you have a professional family law attorney with you, as they can tell you exactly what to do to prevent your business from being damaged!

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