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EFFECTIVE LEGAL GUIDANCE FOR FAMILIES AND BUSINESSES

Do couples split a business in divorce?

| Nov 16, 2020 | Firm News |

Every divorce will have its challenges. Few can be more complicated or frustrating than trying to determine a fair and equitable division of a company founded by one or both spouses, or if the non-founding spouse is entitled to a percentage of ownership.

If the founder started the company after the marriage, the founder would likely share a substantial part of ownership with their spouse. This is unless there is a binding prenuptial or postnuptial agreement, or other business agreement, in place. If the founder launched the business before the marriage, there is a greater likelihood that they can claim ownership, but this is far from a given.

What would make it a marital asset

Marital assets are typically accumulated after the wedding day. However, a commingling of finances can transform an asset like a house or business into a marital asset. Other reasons include:

  • The owner used marital funds to support the business.
  • The owner did not draw an appropriate salary.
  • The company became a corporation after the marriage.
  • The non-founder meaningfully contributed to the success of the company.
  • The non-founder handled all household affairs, leaving the owner to focus on the company.

A business valuation likely necessary

The business will likely be valued as part of the divorce agreement, perhaps with each side hiring their business valuation expert. Various factors go into valuing a business, so it is likely that the numbers will not align, which means there will be more negotiation regarding the company’s value in relation to the divorce.

Each side must protect their rights

It is usually wise for couples with complicated finances like business ownership to work with experienced family law attorneys. These legal professionals can take the business’s ownership details and determine whether the founder should fight to retain their ownership stake or the spouse has the right to a percentage. If the two sides cannot agree on a solution, litigation may be the only option for gaining a fair settlement.