How To Divorce When One Of You Owns A Business

Posted on: 7 September 2017

During the divorce process, the attitude of spouses towards each other becomes more self-protective. What was considered as "one" instantly becomes "50:50." In practical terms, however, the properties and financial resources are not automatically divided in half. It gets more complicated than that. This is especially true when one of you owns a business. Your divorce attorney guides you in these checkpoints of the divorce process when one of you owns a business.

Separate vs. Marital

The first step in addressing business ownership during a divorce is to determine whether it is a separate or marital asset. In the simplest terms, if you owned the business prior to the date of marriage or acquired it using separate money, then it could be a separate asset. Otherwise, if the business is acquired during the marriage, using joint funds, it's probably a marital property. However, considering the financial and labor-related contributions to the business by each of the spouses makes the classification complicated. More often than not, a business owned by one spouse is classified as a marital property and moves on to the process of business valuation and equitable distribution.

Business Valuation

Business valuation in a divorce is even more difficult. With the self-protective attitude towards the spouse, each person may have a contrasting perspective about business' value. The owner-spouse will argue that the business is in bad shape and its value is fairly low. The non-owner spouse will argue otherwise and cite evidence to prove so. Whether you are the owner or the non-owner spouse, you have to work closely with your divorce attorney towards proper valuation of the business. With faulty valuation, the non-owner spouse may not be able to get an equitable share, or the owner spouse will be later on sued for fraud.

Equitable Distribution Options

Once the value of the business is determined, the next step is to divide the business interest through the process of equitable distribution. There are generally three options used by divorcing couples: buy out, co-ownership, and selling the business. Buy out happens when one of the spouses buys the other's stake in the business. Co-ownership happens if both of them agree to continue operating the business jointly. Lastly, they can sell the business and then split the proceeds depending on the allocated business interest.

Divorce can be physically, emotionally, and financially daunting. Owning a business can make the complicated process even messier. From classification, valuation, and equitable distribution, it is important to receive counsel from yourfamily attorney to avoid further problems and to not let emotions take over your wise business and financial decisions.