Can Your Spouse Get Your Business During Divorce?

Some divorces are easier than others, and some are a whole lot harder. Owning a business is a good example of what can make a divorce particularly messy. If you’re considering or facing a divorce and you’re concerned about losing your business, it’s a pretty safe bet that you haven’t signed a pre- or post-nuptial agreement or have partnership or shareholder buy-sell agreements in place to protect it.  That means that your spouse may in fact be entitled to some level of ownership, so if you want to hold on to the business without their continued involvement, you’ll probably need to find a way to pay them off.

One of the first issues that will need to be addressed is whether you owned the business before you got married. Though property owned before the marriage is considered separate, your spouse may still have a right to an increase in its value that occurred during your marriage. The situation can also be complicated by any commingling of marital property after the marriage takes place or by having your spouse work within the business. If you added your spouse’s name to the business checking account or invested marital assets in growing the business, the business will be probably be viewed as marital and the amount that you will need to pay in a buyout will increase.

To hold on to your business, you will probably have to calculate its value and then trade your share of some other marital asset in order to hold onto it. This may involve a lump sum offset in the marital home, cash or investments, retirement funds or a property settlement note that represents a long-term payment that includes interest to compensate your spouse for their share of the business.

The best way to avoid having to give up or pay out cash or marital assets for your business is to protect yourself long before a divorce is being considered. It’s a good idea to have a business attorney draw up a buy-sell agreement that prohibits the transfer of shares if the business is part of a partnership or to craft a pre- or post-nuptial agreement that specifically addresses the disposition of the business in case of a divorce.

For assistance in navigating a divorce or in the creation of an agreement to protect your business in case of divorce, we can help. Contact us today to learn more