Most personal resources are at risk during divorce proceedings. State equitable distribution statutes require that spouses divide the property and income they acquired during the marriage when they divorce.
Some assets can be difficult to address because people have emotional attachments to them. The marital home or a vacation property can cause emotional disputes between the divorcing spouses. Assets that represent significant personal investment or future financial stability can also provoke an emotional response.
A business or professional practice run by one spouse during the marriage could become a major obstacle during divorce proceedings. How can a business owner protect their company or practice as they prepare for a divorce?
Show that the organization is separate property
Sometimes, people have marital agreements with their spouses. They may have signed a prenuptial agreement during their engagement that specifically addressed the business and designated it as separate property. Some people may have inherited the business or may have already owned it before getting married.
While that may mean that the business is partially separate property, commingling often occurs when one spouse runs a business during the marriage. The use of marital income to maintain the business or unpaid contributions by the non-owner spouse can make the business at least partially marital property for the purposes of asset division.
Negotiate an out-of-court settlement
Divorce litigation is inherently unpredictable. Neither spouse can know for certain how a judge might view marital circumstances. In scenarios where one spouse feels that preserving a business is their top priority, finding a way to settle outside of court may be a way to achieve that goal.
Spouses can attend mediation sessions or negotiate in earnest before going to court. Individuals hoping to retain sole ownership and control over a business or professional practice often need to account for the company’s value. They may need to take on more marital debt or agree to let their spouse retain other assets to offset the value of the business.
Provided that the spouses reach an amicable arrangement, their uncontested divorce filing can result in the spouse who owns and runs the business retaining sole control and ownership of the company. In scenarios where property division litigation is necessary, a professional business valuation that takes liabilities and asset depreciation into account can help the business owner limit the economic consequences of including the business in the marital estate.
Business owners and others facing complex divorces often need help preparing for their upcoming family court proceedings. Being proactive about preserving a business can lead to the best outcome for someone who wants to continue operating their business as its sole owner in the future.
