Business Assets and Divorce
A business is treated like any other asset during a divorce. That means that the rules related to community property apply. It also means that you may have the right to a portion of the profits from the business as part of the divorce settlement, even if you haven’t played a role in the creation or running of the business. There are also ways in which you might be entitled to the profits of a business that was started or acquired prior to the marriage.
If you and your spouse own a business together, you may agree to a buy out. This means that one spouse buys the other spouse’s portion of the business, and a plan can be put into place for the payments to ensure that the spouse who was bought out receives a portion of future financial successes. Another way that a co-owned business can be handled is by coming to a separation agreement in which various parts of the business are meted out between the two of you.
What about a business that existed prior to the marriage? Under the rules of community property, a business created or acquired prior to the marriage is non-marital property. But let’s look at the ways that a business that would otherwise be considered non-marital property can become marital property over time.
For one thing, your spouse may have transferred interest in the business to you. If you purchased this interest, then it is your marital property. If it was given to you as a gift, it may be your non-marital property. If your portion of the business is marital property, your spouse may have a right to the profits of that asset. If it was a gift and therefore non-marital property, your spouse won’t have any right to profits from that portion of the business. Another thing that can make the division of non-marital business assets messy is if the business was expanded during the course of the marriage. If this was done with marital funds or credit, a portion of the business would be marital property. It is also important to know that if your spouse works in the non-marital business, work compensation is considered marital property, while dividends from that business are not.
As you can see, it is very important to get advice from a variety of experts if there are business assets involved in your divorce settlement. A professional business evaluator will be needed to determine the value of the business, and a Certified Divorce Financial Analyst can work with your attorney to make sure that everything is handled to achieve the best possible results for your financial future.
For more, see our Certified Divorce Financial Analyst Services