As we have written about many times, divorce is a very emotional process. It can also be complex depending on the marital assets involved. One question that people often ask us is whether or not their former spouse can receive any portion of their business due to a divorce. Although the answer is not clear cut, in this article, we will discuss how a divorce might impact your business. This includes under what circumstances the courts can distribute a business due to a divorce.
Marital Property Versus Separate Property
In distributing assets between a divorcing couple, the courts will look at which property is marital and which is separate. The court divides any property that it considers marital evenly between the couple. By virtue of the property being a property of the marriage, this property rightfully belongs to both spouses. Examples of marital property are homes, vacation homes, cars, boats, art, 401Ks, and other investments.
If one spouse owns any property before the marriage, it is separate property. On the other hand is property that someone gifts specifically to them during the marriage. For example, if a person entered a marriage already owning a home, then that home is a separate property. Another example of separate property is if one of the spouses inherits expensive jewelry from a deceased relative. Then that gift would not be considered marital property because it was a gift to a specific person.
Does That Mean My Business Is Separate Property?
It depends. If the business existed before the marriage and the former spouse has no involvement with it, the court considers it separate property. However, the former spouse might be able to prove some connection to the business, thus claiming it as marital property. For example, suppose a third party valued the business at $250,000 before the marriage. Then through the course of the marriage, the business value rose to $1,000,000. In that case, the former spouse can claim that they enabled the rise in value due to their support at home and throughout the marriage, thus allowing the business-owning spouse to focus on growing it.
Another factor that might make the business a piece of marital property is if, at any point, owners commingled funds. In other words, if money from the joint marital account supported the business, then a case can be made that the business is, in fact, marital property. Lastly, suppose the business was classified as a sole proprietorship. In that case, the court may consider it marital property since sole proprietorships are the same as the individual.
Protect Your Business
If you are considering a divorce and you own a business, then you will want to do everything in your power to protect it. Conversely, if you are getting a divorce and feel you are entitled to your spouse’s business, make sure you properly assert your claim. Either way, divorce can impact your business, so it is important to speak with a lawyer who is an expert in family law assets. At Thompson Law Firm, our professional attorneys have years of experience in handling complex divorce cases and small business issues. Please contact us for a consultation so we can review your case and advice you of your rights.