Realizing your marriage is ending can feel devastating. But, as stressful as it may seem, staying level-headed is important during this time. As the legal process unfolds, property division can come into play, which affects your bank accounts, properties, and, notably, your business.
Understanding how divorce can impact your business is crucial. It helps avoid unnecessary financial loss or disruption to your business operations.
Knowing the status of your business
First, it’s essential to determine if your business falls under marital property. The classification of a business you started or grew during your marriage differs from that of a business you built before marriage. If you started your business during your marriage, it is a marital property by law. This means it could be subject to division during your divorce.
But if you started your business before marriage, courts can classify it as separate (or partially separate) property, exempting it from division during a divorce. This means that it stays solely under your control and your spouse has either no legal claim to it or only a partial claim.
Determining who might own your business
If courts classify your business as marital property, it doesn’t automatically mean your spouse will take complete ownership. The business, like other marital assets, is subject to division. However, how the division occurs depends on several factors, including:
- The duration of the marriage
- Each spouse’s contribution to the business
- Each spouse’s financial situation
- Each spouse’s future earning potential
- The value of the business
- The structure and nature of the business (sole proprietorship, partnership, corporation, etc.)
- Professional licensures
Once courts evaluate these factors, their decision could result in a buyout, continued joint ownership or offset by other assets. The process is guided by the principles of equitable distribution, which ensures fair but not necessarily equal division of assets before a final decision is made.
Protecting your interests in a divorce
Understanding the intricacies involved in a divorce—such as how prenuptial agreements can affect the fate of a business—can be overwhelming. But remember, you don’t have to navigate the divorce process alone. Consider seeking guidance from an attorney to help you understand and manage these complexities.