Does My Spouse Get Half My Business in a Divorce?
This is a commonly asked question when a business owner starts the divorce process. You have worked diligently for years to build the successful business you have today, and it is normal to feel anxious about how your divorce will impact it. Whether you started your business before or after getting married, it is important to understand the various ways divorce can affect a business.
Things that may impact how your business is treated during your divorce include:
- When your business was founded
- Your spouse's involvement in the business
- Your financial obligations to your spouse
- Your business' valuation
- Any existing prenuptial or postnuptial agreements
Is a Business Considered Marital Property?
If you own a business, it is likely your largest financial asset. Therefore, determining how it will be classified during your divorce is incredibly important. In California, property is classified as either marital property (shared by the spouses) or separate property (owned solely by the individual and not subject to division during divorce proceedings). Because California is a community property state, assets acquired during a marriage are typically considered marital property. Depending on your circumstances, this may include your business.
When it comes to dividing a business, there are several options. One spouse can buy the other out of their interest in the company, the business can be divided between both parties, or the business can be sold and the profits split between the spouses. There may also be the option to maintain the business as is, with both parties retaining their respective interests. However, this typically only works if both parties are able to maintain an effective, professional relationship.
Ways to Protect Your Business While Going Through a Divorce
As you move forward with your divorce, you are likely very concerned about protecting your business throughout the process. While there are no guarantees and every divorce is different, there are steps you can take to put yourself in the best possible position for a favorable outcome. Keep reading to learn more.
You Need a Fair Business Valuation
One of the most important aspects of dealing with your business during your divorce is ensuring that you receive a fair and accurate valuation for your business. If your business is classified as marital property, it becomes one of the many assets that must be divided equitably. If your business is not correctly appraised, you are at greater risk of losing the business in your divorce. The lawyers at Burch Shepard Family Law Group are well-versed in business valuation, and we have helped many clients receive proper valuations for their businesses.
Prenuptial & Postnuptial Agreements
A marital agreement is one of the best ways you can protect your business interests during a divorce. Many people who own a business prior to marriage will establish a prenuptial agreement with their spouse to ensure that the business is protected in the event of a divorce. Similarly, if a business is started after the marriage occurs, some spouses establish a postnuptial agreement that designates the business as one spouse's individual property and/or outlines how the business will be handled during a divorce or separation.
It is crucial that you work with an attorney when establishing a prenuptial or postnuptial agreement. Both parties should retain their own legal counsel during the process as well. If a judge determines that the marital contract is not legally valid or that it disproportionately disadvantages one party in favor of another, it may not hold up in a divorce.
It is not uncommon for someone to regret signing a marital agreement and to attack its validity. Therefore, you should make your divorce attorney aware of any prenuptial or postnuptial agreements that address your business so that they can be correctly analyzed and defended if necessary.
Protecting Business Assets with Trusts & Other Methods
You may have heard that if you place your business in a trust, you can protect it from your divorce. In some circumstances, this may be a good option. When you place a business in a trust, you technically no longer own the business. Instead, it is being held for the trust's beneficiaries. This may keep it from becoming classified and divided as marital property during your divorce.
However, placing your business in a trust is not the best choice for everyone, and before doing anything, you should speak with an attorney. There may be other methods for protecting your business assets that are a better fit for your circumstances.
Turn to Your Lawyer for Guidance
As a business owner, it can be very difficult to know what to do when divorcing. It can be very distressing to have your personal life affect your business so directly. You must be careful about how you handle the situation. Your lawyer should be your go-to resource when it comes to protecting your business during your divorce. A skilled attorney can answer your questions and help you navigate the entire process.