Going through a divorce can be a difficult, stressful time for both parties involved. If you or your soon-to-be former spouse own a business, however, the divorce process can get even more complicated and frustrating. Business owners who are thinking about filing for an uncontested divorce may have some unique concerns regarding the best way to divide commonly-held assets without affecting the solvency of their company. Because spouses of business owners may be entitled to up to 50% of a company in certain circumstances, it is critical to know what to do to make sure your ex doesn’t end up owning half of your company in the aftermath of a divorce. Here are some tips to help make sure that you and your business are prepared before going forward with a divorce, in order to prevent your company’s future from being at risk.
Separate Property vs. Marital Property
You’ve heard of common property law, but did you know that not all property must be shared with your spouse upon getting married? According to Denver uncontested divorce specialists Split Simple, “The laws vary from state to state, but property is generally considered separate if it:
- Was owned prior to getting married
- A gift received solely by one spouse
- An inheritance received solely by one spouse
- Is part of a personal injury settlement and earmarked for “pain and suffering”
Keeping this in mind, it’s vital to understand that separate property can become marital property if combined with other assets that are jointly owned by the married couple. For example, if you receive an inheritance from a deceased relative and you deposit the inheritance check into your joint savings account, you have effectively lost all rights to the inheritance as separate property and it is now considered your spouse’s property as well.
Marital property can include all assets accumulated by either or both spouses over the course of the marriage. This can include all of the following:
- 401(k)s, IRAs and other retirement plans
- Mutual funds, stocks and bonds
- Life insurance, annuities
- Checking and savings accounts
- Real estate
- Cars, trucks, boats and motor homes
- Commissions, bonuses and tax refunds
In addition to these assets, any personal business that you own could qualify as marital property if it was founded after you were married. If there is no legal binding document, such as a prenuptial agreement, stating that any business you start after marriage belongs solely to you, then it counts as your spouse’s business as well.
Equitable Distribution vs. Community Property
Most states follow the Equitable Distribution laws, which take the length of the marriage and a spouse’s involvement in a business as well as his or her earning power into account before arriving at a settlement. However, nine states, referred to as Community Property States, consider both spouses as owners of all marital property and require a 50-50 split upon divorce. These nine states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If you and your spouse live in one of these nine states and you have no legal documentation that you, separate from your soon-to-be ex, are the sole proprietor of your business, you may be in for a bit of a court battle over the ownership of your company.
If you and your spouse have filed for an uncontested divorce, it is absolutely possible to have an amicable division of assets by cooperating to meet each other’s needs, splitting the assets as fairly as you can, and being upfront about the things you want and need most out of your divorce agreement. By keeping property laws in mind and remaining vigilant about protecting your business, you will be able to finalize your divorce and divide your assets as quickly and simply as possible.