Business Ownership During Divorce: All There Is To Know
Posted on: 22 October 2021
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Going through separation or divorce can be time-consuming, frustrating, emotionally draining, and expensive because there are a lot of crucial considerations to be made. For instance, if a business is one of your assets, questions regarding ownership after the divorce may arise. This is crucial because you will want to know who gets to keep the business or how you need to divide it. Several laws exist regarding marital property, so you must pay close attention if you own a business and are going through a divorce. Therefore, here is an in-depth look into some significant factors worth knowing about business ownership and divorce.
Marital vs. Separate Property
Knowing whether your business is considered marital property or separate property is crucial when going through a divorce. Laws generally vary from one state or territory to the other. However, marital property usually entails any assets or property acquired by either spouse in the marriage. It may include property and assets like real estate, closely-held businesses, retirement and pension plans, life insurance and annuities, bank accounts, brokerage accounts, etc.
On the other hand, separate property may include but is not limited to any property or assets owned by either spouse before the marriage or acquired after the marriage. It may also include inheritance received solely by one spouse, gifts received solely by one spouse from a third party, compensation from personal injury claims, etc. Worth noting is that separate property may be considered marital property in some jurisdictions if its value increases during your marriage. Therefore, you will need to seek legal advice from those at a family law firm.
Dividing the Business
The courts will often consider many factors when dividing the business during divorce. First, they will determine the value of the business, which may entail evaluating all its assets and liabilities. Once determined, they may look at the business's origin (whether it existed before the marriage), the involvement of each spouse in running it, how the business started (whether one spouse contributed more than the other), etc.
Generally, three primary approaches exist when dividing the business during divorce: buy-out, co-ownership, and selling the business. As the name implies, buy-outs involve one spouse buying the interests of the other in the business. In addition, one spouse may choose to forego their interest in the business in exchange for another marital property or an asset like a family home. Co-ownership is another option that allows both spouses to continue running the business jointly after a divorce. However, this is not always amicable and requires high levels of trust and respect. Last, you can decide to sell the business and divide the proceeds along with other marital assets. However, selling a business is not always easy and can take time.