How to Protect Your Business in a Divorce

If you are going through a divorce, or could potentially go through one in the near future, there is plenty to think about. There are the emotional elements of going through a divorce, there may be custody agreements to be made if you have children, and of course there are joint finances and assets to consider. Many people opt to go through uncontested divorces, and they may even use services like LegalZoom online.

However, what should you do if you have a business you own and want to protect, and you’re also going through a divorce or see one occurring in the near future?When you have a business, it can be your most valuable asset, so how does this play out when you’re charged with dividing those assets with your soon-to-be former spouse?

divorce certificate

Following are some general things to know if you are a business owner going through a divorce.

Be Proactive

If at all possible and you haven’t yet gotten married, it’s the best time to take the necessary steps to protect your business. If you are in a relationship that’s headed toward marriage and you’re a business owner, you need to have the uncomfortable conversation of how you’ll protect your company and your interest before you walk down the aisle.

If people would do more before they get married to protect themselves and their assets, facing divorce might be a lot less daunting, at least in terms of the logistics. Of course, not everyone has done that, and you may already be married and worried about what will happen to your business during a divorce.

Is a Business a Marital Asset?

One of the biggest questions people have is whether or not a business is actually a marital asset, and the short answer is that it depends. If you build value in your business during marriage, or you invested marital money into your business, it may very well be an asset. Also, if your spouse has invested money or time in the business in the form of sweat equity, this may also make it a marital interest.

Different things can happen here. First, you may be able to retain your business even if it’s considered a marital asset, partially or in whole. However, to do so, you’re likely going to have to offer some other form of assets to your spouse so that he or she will waive their interest in the business. Another option is to work on proving that your business is separate property. This would mean you would need to demonstrate your spouse doesn’t have any interest in it, and that it should remain your property after the divorce.

If, somehow, you didn’t invest marital funds in your business throughout your marriage, you may be able to continue on with your business without a divorce impacting it. In some cases, if your former partner doesn’t agree to accept a different form of a payout in exchange for their interest in a business, a judge may order it. This usually happens if it’s going to be better financially for one spouse to continue to own and operate the business.

Protect your business in a divorce

Determining If a Business Is Separate Property

If your goal is to show that you not only started the business before you were married but that it should be handled as separate property in a divorce, there are some things you’ll need to be able to show. Some of the factors that are going to play a role include how long you had the business before you got married, and also the assets and profitability of the business before the marriage. You’ll need to determine what the value was at the time you were married, and you’ll have to assess how the value of the business has changed during the marriage.

Final Considerations

You’re also going to have to consider how much of not only your spouses’ time went into the business during the marriage, but your own time as well. That’s considered an investment as well. Finally, if you have a family business that was passed down to you, the situation can be somewhat different.

You have to demonstrate that you getting the business from let’s say your parents or grandparents was a gift specifically to you, and it wasn’t something that created a marital interest. Other factors relevant to a family business and a divorce include whether you received the whole business, or it’s shared between you and other people in your family.