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Is your business subject to division if you divorce?

On Behalf of | Jul 6, 2024 | Divorce |

As a business owner, you may wonder if your business is among the assets you will split with your spouse after parting ways. The answer depends on the particulars of your situation, as explained below.

The first step in determining whether your business is subject to division is understanding if it is considered marital or separate property. Marital property includes assets acquired during the marriage, regardless of whose name is on the title. On the other hand, the assets you owned before the marriage, as well as some inheritances or gifts, are collectively known as personal or “separate” property. 

Only marital assets are up for division during divorce. Therefore, if you started or acquired the business after marriage, it is generally considered marital property. It means your spouse is entitled to a share upon divorce. On the flip side, if you owned the business before marriage, it is considered separate property. However, other factors may come into play and your spouse could still have a stake in such a business.

Did your spouse contribute to the business?

Your spouse may be entitled to a share of the business started before marriage if they contributed to its growth and success. Their contributions do not have to be direct, like running business operations or making business-related decisions. Indirect contributions, such as taking care of household duties to allow you to focus on the business or providing emotional support, also matter. 

Did the business grow in value?

If you owned the business before tying the knot, any increase in the value of the business during your marriage is considered marital property. Your spouse may be entitled to a share of the appreciation because it often results from the combined effort and resources of both spouses. 

Is the distinction between marital and separate property clear?

There is also the possibility of commingling assets, where personal and business finances mix, blurring the line between marital and separate interests. For instance, using marital funds to invest in the business or paying business expenses from a joint account can make it hard to claim the business as separate property.

These are some of the complexities you may encounter when dividing a business and other assets in a divorce, which makes it prudent to seek qualified legal guidance. With so high the stakes, you do not want to make costly mistakes that could have far-reaching consequences on your financial future.