The Legal And Financial Implications Of Divorce For Business Owners

Things can get complicated if you are a business owner and also going through a divorce. In addition to the personal implications, divorce can have significant legal and financial consequences that can affect a business and its owners. Issues can become even more complicated when a business is involved, as it may be considered a marital asset subject to division.

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But how exactly does divorce affect business owners, and what can be done to protect the business ahead of time?

The Legal and Financial Implications of Divorce on a Business

Divorce can put you in a sticky situation, especially if you own a business. You could end up becoming a business partner with your soon-to-be-former spouse. You may also have to forgo 50% of the business in community property states or an equal amount in equitable distribution states. 

“Everything from when your spouse started the company or how they obtained it to the way that they supported and maintained the business during the marriage will affect your rights,” note divorce attorneys at Ciancio Ciancio Brown, P.C., “If your spouse used marital property or income earned during the marriage to start the business or keep it running, you may have at least a partial claim to its value as marital property.” 

When deciding whether your business is deemed marital property or not, the following factors play a key role:

• When did you form the business 
• The length of time between your marriage and business establishment 
• The success level of your business before and after the marriage 
• How much has your spouse been involved in the business formation 
• Your spouse’s contribution to the business’s growth or operations 

Exceptions to Marital Property

As discussed above, numerous factors determine marital property. But there are some exceptions:

• Bequests, gifts, and inheritances from a third party are kept in a separate title.
• Property or other assets acquired before the marriage and kept in a separate title. However, the increase in asset value during the marriage is counted as marital property.
• Any asset acquired after divorce or separation with non-marital funds
• Assets that are protected by a prenuptial agreement

How to Protect Your Business During a Divorce

There are several ways to protect your business so it can withstand divorce. These include:

1. Get a prenup: Although a prenuptial agreement is not guaranteed to save your company, there is a good chance it will. In the agreement, you will designate any future business or businesses already established as a separate property. You must provide full disclosure to your partner. The agreement must be completed in writing and signed in the presence of a notary or witness, and there must be no coercion. Signing should be voluntary and not done a couple of days before the wedding. Otherwise, the prenup may be considered invalid by the court. 
2. Get a postnup: A postnuptial agreement is similar to a prenuptial agreement but is drafted after marriage. Courts meticulously study postnups since spouses are signing their rights away. The courts do not always uphold these agreements, but they may still be helpful. 
3. Make sure your spouse is not working with you or for you. The more involved a spouse is, the more they can be considered part of the business. 
4. Separate your expenses. Keep your business and personal expenses separate so the company can remain your separate property. Co-mingling funds can complicate your situation. 

If you are a business owner in the process of getting a divorce, you must know your rights. Be reasonable and don’t let resentment for your spouse get in the way of making fair decisions. 

Contact a Legal Professional to Learn More about the Laws

Splitting assets during a divorce can be quite stressful. If you don’t understand the law or have other questions regarding protecting your business or other assets, consider contacting a reputable divorce attorney to explore your legal rights under the law. An experienced legal professional can answer your questions and clear any misconceptions about the financial and legal implications of a divorce on your business and guide you accordingly.