It may take years of specialized education and personal sacrifices to develop a business. Some people start their own retail shops, while others establish a professional practice after obtaining a graduate degree.
A business or professional practice has a major influence on the owner’s standard of living. The more successful the business becomes, the more income they may derive from company operations. Unfortunately, running a successful small business or professional practice can inspire significant complications during divorce proceedings.
Is the business that someone built, inherited or purchased at risk during a divorce?
Both spouses may have an interest in the company
Some people expect to claim the business that they run as their separate property. They may think that the business belongs solely to them because they are the only one who works there. Other times, the fact that they started the company before they got married or inherited it from family members might lead someone to believe that they don’t have to share the value of the business when they divorce.
Even if a business might theoretically be separate property during a divorce, things become more complicated if commingling has occurred. Unless there is a marital agreement on record, the non-owner spouse could potentially claim an interest in the business when a divorce occurs because of commingling.
People tend to reinvest some of their income in the business. The use of marital income and assets to improve or maintain separate assets can constitute commingling. Any unpaid services provided by the non-owner spouse could also give them a claim to an interest in the business. Typically, business owners need to carefully determine the valuation for their company and prepare for negotiations or litigation to address the organization.
Joint ownership isn’t necessary
It is possible to address a spouse’s partial interest in a company without allowing them an actual ownership stake in the organization. After determining what the company is worth and how much of that value is marital, the spouses can negotiate how to balance out one spouse’s retention of the company with other assets.
Allowing the non-owner spouse to keep certain property or having the owner spouse take responsibility for more marital debts could potentially help produce a fair property division outcome. The extent of the marital estate, the value of the business and a host of other unique details influence the best approach to addressing a professional practice or closely-held business during divorce negotiations.
Protecting ownership rights and daily control of a business may be a priority for a spouse who owns a company and who is getting divorced. People who set clear goals can focus on what matters most throughout the lengthy and often frustrating process of divorce.