When you are a small business owner, you put a lot of time and effort in keeping your business running and helping it grow and succeed. You may not think about how divorce will impact your business until you and your spouse decide to split. Unfortunately, if you haven’t protected your business, you may end up losing a big share of it in divorce.
Is your business marital property?
When you divorce, your business will be considered a marital asset if you started it after you were married. If you started your business before you married, it still may be considered marital property if you used funds from a joint account to help the business stay afloat or grow.
Also, if you didn’t take a fair salary while you were married to help your business, that could entitle your spouse to receive a larger share of the business in divorce.
Is your business protected?
The only way your business will be protected in divorce is if you have done one of the following:
- Have a signed prenuptial agreement or postnuptial agreement that protects your business assets
- Have placed the business in a trust (meaning you no longer personally own it)
- Have a buy-sell agreement that limits your spouse’s ability to gain ownership of the company
What’s next if my business is not protected?
If your business is not protected from being considered marital property, your spouse may be entitled to half of its value (or more). You will need to have a business valuation completed to determine exactly how much your business is worth.
If your business has significant value, most likely your spouse will hire his or her own valuation professional to determine what it is worth. Then a judge will decide how much the business is worth and what share of that value your spouse will receive.
Once the business valuation has been established, you can buy out your spouse from their share by giving them other assets in the divorce (a larger share of the marital home’s value or a larger share of investment or retirement savings, for example).
You also could decide to sell the business and split the proceeds.
No matter what your situation is as a business owner facing divorce, you should consult an experienced family law attorney about how divorce will impact your business. An attorney can help you protect your business and lessen the impact of divorce on your business.