Millions of Americans own and operate their own family business. Self-employment can be a fantastic way to ensure financial security for yourself and your children. It can also be a fulfilling way to continue your family’s legacy and contribute to your community. Divorce, however, can disrupt the continuity of your business and threaten its future. Protecting your family business in case of your divorce requires a firm understanding of the laws surrounding property division.
If your business exists before your marriage, as would be the case when, for example, you are working in a family business that was founded by your parents, it is likely that your business is separate property. This means that your family business would not be subject to division in a divorce action. However, depending on how you and your spouse treated the business during your marriage, it is possible that it is now marital property. For example, if you are the sole proprietor of a business you inherited from your parents, and during the marriage, your spouse works only for the business, substantially contributes to its upkeep and improvement, and the business accounts are in both of your names, it may now be marital property. If you have a business already before your marriage, the best way to protect that business is through a valid and enforceable prenuptial agreement specifically stating that the business is separate property and not to be divided in the divorce. In the absence of a prenuptial agreement, it will be up to you to prove to the court that your business has remained separate property throughout the marriage and that it is not subject to division.
If you started your business after you were married, then the assets are almost certainly marital property and the business will be subject to division. However, this does not necessarily require that you literally give half of your business interest to your former spouse. It is possible for you to offset the value of your business with other marital property. For example, if your business is worth $100,000, your spouse’s share of the business would be $50,000. Instead of selling your business and giving half to your spouse, it is possible for you to make sure your spouse receives $50,000 worth of other assets from your marital estate to make up for not receiving a portion of the business. In order to have a fair and accurate distribution of your business, regardless of whether you offset the value or sell the business and split the proceeds, it is likely you will need to retain the services of a professional business evaluator to get an accurate value for the business.