What Will Happen to my Business in a Divorce?

When you decide to get divorced, you obviously have concerns about your family’s well being, but what about your business? Divorce affects all aspects of your life and can also affect your company, especially if you co-own it with your spouse. 

Business and Divorce Don’t Mix

How your business is affected will depend on a few factors. If the company was started or acquired during the marriage, then the business is considered marital property, which must be split between both parties. In some cases, if both parties own the business equally, one spouse may have to “buy out” the other and pay half of what the business is worth to own the entire company.

If your spouse’s business was acquired before marriage, any increase in the value that occurred during the marriage becomes marital property. In this case, the courts generally assume each party is responsible for half of the increase and therefore, will award each spouse 50% of the total amount of growth. 

Even if you and your spouse reach a resolution about the distribution of business assets in or out of court, an expert valuator typically assesses each party’s stake in the company to determine value and a clean distribution. 

How to Protect Your Business

One thing you can do now to protect your business is to get a prenuptial or postnuptial agreement (depending on your situation) that protects your business in the event of a divorce. Another option is to get a buy-sell agreement drawn up. 

Other ways to protects your business include: 

• Ensuring your spouse is not working for you or with you; this could complicate matters further if you decide to part ways.
• Paying yourself a regular salary from the business instead of reinvesting your earnings back into it. 
• Making sure you keep all personal and business expenses separate. When it comes time to divide assets, you want that kept clean. 
• Put the business in a trust and remove it as a marital asset. 

Your Business and Your Divorce

Your business is your livelihood, and if you have sacrificed and worked hard to build something of real value, you want to hold onto it. Even a small business may be at risk during a divorce. There are ways to protect what’s yours. 

If you’re concerned about what will happen to your business during a divorce, the first thing to do is speak to a lawyer. Call us today to discuss your options.