People often have specific questions about their rights and protections as they prepare for divorce. Those who run successful small businesses or professional practices tend to worry about their companies.
Particularly when they started the business years ago or inherited it from a family member, they may assume that they can retain sole ownership and control of the business when they divorce. They don’t want to share the company with a spouse or run it with them.
People often believe that their businesses are separate property. However, in some cases, businesses can be marital property.
What is separate property?
To explore whether or not a business is separate property, people have to understand what constitutes separate property. Generally speaking, either spouse has the option of retaining assets that they owned before marriage as separate property if they divorce. Gifts received from others and inheritances are usually also separate property.
Any income earned during the marriage or property acquired with that income is subject to division in a divorce. Commingling separate property with marital assets by using marital income to maintain that asset can make previously separate property marital property that is subject to division.
Even if a business was part of an inheritance or belonged to one spouse before marriage, they have almost certainly used marital income to reinvest in the business. Some spouses protect against that risk with prenuptial or postnuptial agreements. Without a written contract, a spouse who owns a business may have to consider at least a portion of its value during property division negotiations for their divorce.
How do people protect their businesses?
If a business owner can’t claim the company is separate property, they still have ways to protect the organization during a divorce. Many business owners benefit from pursuing uncontested divorces. Instead of leaving the major decisions about the company to the discretion of a judge, they set their own terms by working with their spouses.
By attempting to resolve their issues outside of court, they can retain control over the outcome of the property division process. Letting a spouse retain a retirement account or stay in the marital home could seem like a reasonable trade for their marital share of the company’s value.
Business owners preparing for complex divorce proceedings typically need help exploring their options. Developing an appropriate strategy may help someone protect their business during a divorce.
