Couples do not usually expect to become divorced when they first get married. However, it can happen. The process of divorce requires two spouses to split the life they brought and built together. During this time, their assets must be divided between the two of them. This process can often be very difficult, especially if one or both the spouses run a business. In these situations, the court must determine the status and value of the business in order to achieve a fair distribution of assets. It is crucial to retain the services of a skilled divorce attorney during this time to protect your business.
Marital Property vs. Separate Property
When couples go to court to divorce, a judge is given the right to determine the state of their marital assets. This includes their division and distribution amongst the spouses. In order to determine which assets belong to whom, the judge must establish marital property from separate property:
- Marital Property: Assets acquired and deemed both spouses’ property throughout the marriage
- Separate Property: Assets acquired before the marriage and agreed to stay separate throughout the marriage
When a business is considered marital property, it can be subject to equitable distribution. This means the worth of the business can be divided in a fair and just way between both the spouses.
Valuing a Business
If a business is to be distributed between both spouses, it must be valued first. To begin this process, the business has to be defined. This allows the court to understand the status of the company, what assets are available to the spouse, and what shares are owned by other people. For example, privately-owned companies are often at least partially owned by family members or spouses. When determining the business’ value, a valuation expert analyzes business records in addition to business practices and expenses. During this time, the court may also request further information regarding the business owner’s financial state.
A determining factor in valuing a business is how its income can impact other marital factors. This is because a spouse’s financial gain from the business can affect the division of other assets as well as alimony/child support payments. It is important to know that if a spouse did not contribute to the business’ growth, they may be entitled to a lesser percentage of its value.
Protecting a Business
There are ways a business can be protected in a marriage. This can be through drafting a shareholder agreement, a prenuptial agreement, or a postnuptial agreement. A shareholder agreement designates ownership and each party’s interest in the business. A prenuptial or postnuptial agreement outlines how the value of the business would be divided if the couple were to divorce.
Contact our Firm
If you need an experienced legal team to guide you through your divorce, contact Townsend, Tomaio & Newmark L.L.C today.