What Happens to a Business in a Divorce?

In law, we think that things are neatly divided into legal categories—business law, family law, estate law, or criminal law, for example. But the real world doesn’t work that way—in the real world, many legal problems cross over into various legal areas, and nowhere is that as true as in divorce cases—specifically, divorces where there is a business involved.

Many people who get divorced have a business, whether it is owned by one spouse, or jointly by both. And many business owners may have concern over what might happen to their business should they get divorced.

Marital or Non Marital?

One big misconception that business owners often have about divorce is the belief that so long as they owned the business before the marriage, that upon divorce, the other spouse has no interest in the business. But this is not true.

Although you owned the business before your marriage, the business likely grew while you were married, both in size and in value. That growth, according to Florida’s family laws, is a product of both you and your spouse—even if your spouse wasn’t physically working at the business.

Imagine a situation where you grow the family business while your spouse stays home and raises the kids. The growth of the business was enabled in part by the spouse who watched the kids, allowing you to grow the business. That means that the stay-at-home spouse still has a financial interest in the business upon divorce.

Additionally, many people commingle business assets with marital assets—the business may pay for a family car payment, for example, or the family may take on personal debt to help a struggling business. This intermingling can turn a nonmarital asset business into one that is a marital asset.

Paying Out a Spouse’s Interest

If your spouse is entitled to part of the business, how does he or she get that interest? There are a number of ways. In a drastic situation, the business can be liquidated and its assets sold and then the spouses can be paid—but that normally isn’t what the business owning spouse may want.

That may mean that a spouse’s interest in the business may have to be valued, which means placing a value on the business itself. Once a value is determined, there must be a payout.

In family law cases, you may be able to pay out a spouse’s interest in a business, perhaps by giving him or her other assets from the marriage, that he or she wouldn’t have otherwise received, allowing you to keep the entirety of the business. Or, some other form of payment—say, extended alimony that otherwise would not be received—can be used to pay the spouse his or her share of the business.

You could legally just continue to co own and comanage a business—but for divorcing couples, this often is not a situation that they prefer.

Protect your business now, from unforeseen events in the future.  Call the West Palm Beach business law attorneys at Pike & Lustig to help you with your business questions.

Source:

americanbar.org/groups/business_law/resources/newsletters/basics-of-business-divorce-what-to-consider/