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Untangling Business Assets In Divorce: A Comprehensive Guide

Untangling Business Assets In Divorce: A Comprehensive Guide

Business Assets In Divorce

When you know your marriage has reached its end and are considering getting a divorce, many things go through your mind. You want to make sure your children are protected and can continue enjoying the same standard of living they have known so far.

You want to divide the property that you share and make other important decisions. However, when the divorce involves a business, many complex concerns are likely running through your mind. 

There are ways to untangle business assets when there is a divorce. The first step you should take is to request a consultation with an experienced divorce attorney. Let’s see some steps that may result in a fair division of business assets in a divorce.

Is the Business Considered Marital Property?

Marital Property

Several factors will help determine if your business is marital property or not. If you owned this business before you got married, it may be easier to claim it as a separate asset, provided you have taken steps to protect it in that sense. This means having a separate bank account and not blending it with any other marital property.

There may also be a pre-nuptial agreement stating that the business is separate from other assets you have or will acquire while married. You can also protect your business by setting it up as an LLC or a partnership. Your spouse’s role in the company will also be a determining factor when you are going through a divorce.

Is an Ex-Spouse Entitled to Part of the Business in the Divorce?

If your business is determined to be marital property, you may have no other option but to give part of it to your ex-spouse. Marital property is that which was acquired during the course of a marriage. An exception is property or a business that you inherit while married or receive as a gift that specifically states it is only for you.

However, even if the business was your property before the marriage, you may have a hard time arguing this should not be considered marital property if your spouse participated in it during the time you were married and the business grew in value accordingly.

Common Ways to Divide a Business in a Divorce

If you have concluded that the business will have to go to both you and your ex-spouse, there are different ways in which this can be accomplished.

Here are some ideas:

  • Buyout: In this case, one of you buys the other’s interests in the business.
  • Co-ownership: You agree to keep working together only now purely as a business relationship with clearly defined roles.
  • Sell the business: If no other compromise can be reached, you can always sell the business and divide its assets.

What Happens Once a Determination Has Been Made?

Once you decide if and how the business will be divided, it needs to be valued. There are several methods for doing this. Once you know the value of the business, depending on the state where you live, the business might have to be split 50-50. In other states, the amount you and your spouse will receive will depend on various factors.

During the divorce negotiations, it’s possible to reach a settlement in which a spouse relinquishes their interest in the business in exchange for another asset such as the home you shared while married, a retirement account, or a cash buyout.

Related: Balancing Compassion And Financial Wellness

Some Added Tips For Divorce

 Tips For Divorce

Going through a divorce is already not the easiest thing to go through. So, always make an effort to streamline the whole process so that both of you guys can be at peace. 

1. Organize Finances

When business owners go through a divorce, they need to take special care and organize their finances. Going through a divorce is already pretty tough. Therefore, try to streamline the whole process. This can only be done by organizing and documenting your finances.

Keep a record of everything, including tax returns, equity, total valuation, and documentation of profits. This will enable a fair division of properties and assets. It will also protect you from future lawsuits. We suggest that both parties sit down with their respective lawyers and financial advisors to allay any sort of confusion that might come up. 

2. Differentiate between Personal & Business Assets

As a business owner going through a divorce, you must have a clear idea about the differentiation between personal and business assets. Understanding which assets are part of the business and which are part of the personal is the first step towards avoiding future lawsuits.

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Even if a divorce is not on the horizon, do not co-mingle between personal and professional assets. You must keep business out of your personal life at all costs. However, if you are having any sort of problem differentiating between the two, sit down with your respective set of financial and family lawyers in order to allay any confusion. 

3. Understand The Professional Valuation

In order to properly divide a business, you need to have a clear idea about the overall valuation of your company. This is something that cannot be done all by yourself. Seek professional help from a group of lawyers and financial advisors to avoid overvaluation or undervaluation.

Again, do this while being in the presence of your group of lawyers and in the presence of the other party. This will keep the valuation transparent and dispute-free. It will also enable effective division between the two parties. 

4. Consider Buying Out

In some cases, where both spouses have decided to start a business venture, divorce becomes a huge issue. You guys can go on a long and tiring legal tirade and end up nowhere. Instead, you guys should look for less aggressive means of separation.

We are talking about amicable buying-out options or co-ownership. Both things will enable you to effectively navigate the landscape of divorce. However, for a co-ownership to work, you and your ex should be on the same page about everything. Otherwise, things will fall back into chaos. 

5. Safeguard trade Secrets & Intellectual Properties

Every business works with intellectual property. These intellectual properties are the backbone of any business. When both of you guys are going through a divorce, you need to understand that these intellectual properties are very important for the proper functioning of a company.

If you guys are going through a divorce, make collective efforts to safeguard these intellectual properties and ideas. Otherwise, things will not work out in any way. Before you start dividing assets, take a moment and legally safeguard these assets.

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