In the wake of a divorce, it is common to wonder what will happen to your business. Often, the focus of couples will be on child support. It can be easy to forget the other financial agreements and legalities arising from a split with your spouse.
When building a future, it is possible to consider setting up a business and running it together. After all, you have to think about your future as a family. When running the company, the couple may have different roles and contributions. As the marriage crumbles, it can be easy to think that the person who “contributed” more to the business will get more. However, it is not always the case.
This article will discuss how business interests can be divided after divorce.
Division of Assets and Liabilities
One of the things to consider first is the division of assets, which depends on the state that covers the marriage. The state will decide if the asset division will fall under community property or equitable distribution.
As with assets, debts and other liabilities during the marriage are also divisible, regardless if only one partner is responsible for acquiring them. The business assets you own after the divorce are different from the personal assets owned before the marriage. Business assets include cash, accounts receivable, inventory, and real estate. You may also have the equipment, such as computers or vehicles, purchased during the marriage.
When looking at your business assets, it is essential to know that there are two types of property: community and separate. Community property is any asset acquired during the marriage, including real estate. If you and your spouse were equal partners in the business, then any income the company generates would be considered community property. A separate property is something owned before marriage or during the separation period after divorce.
Dividing Business Ownership After Divorce
A company may be one of the most valuable financial possessions one can own. It can be scary to think that all the hard work will be lost after a divorce. That is why it is essential to consider whether the business is a marital or non-marital asset.
If you and your spouse have separate businesses, dividing your wealth is straightforward. This is, however, dependent on whether your organizations are incorporated or not.
Unincorporated Business
This business type is not an asset. However, all that makes up the company may be considered assets. These assets may include:
- Offices (if owned);
- Equipment, tools, and vehicles used to run the business;
- Business financial accounts;
- Business debts; and
- Business goodwill, including name value and ability to earn in the future.
Incorporated Business
Some parties may register their business as a corporation. With it, they can separate their personal and business assets and liabilities. When it comes to incorporated businesses, the law recognizes shares as assets. They will determine the value of the assets and liabilities and divide it by the shares owned. Value determination is similar to that of an unincorporated business.
In case of a divorce, a spouse can divide the corporation shares or receive assets from the business. Based on the legal guidelines, these assets must be divided 50–50. You retain company ownership if the company is brought into the marriage. However, any increase in the valuation of the company during the marriage should be shared evenly.
If the company were an inheritance during the marriage, it would not be included in the division of assets. However, the other partner may have a stake in it if it is intermingled with other marital assets.
After a divorce, the parties can ask for a formal business valuation. Once the valuation is final, the equalization process determines the amount the owner must award to the non-owner.
Registering the business as a limited liability corporation (LLC) does not offer protection from the division of assets. While some courts will not dissolve the business, they may adjust ownership interests.
If you are keen on keeping your operations intact, it may be best to compensate the spouse for their business interests. It is also possible to have the partner take a property of similar value to pay for their company share.
Protecting Your Business Ownership During and After Divorce
It is vital, as a business owner, to ensure that your business has protection during and after divorce. If you married a Canadian, you have up to two years from the conclusion of the marriage to claim a property division.
If the relationship is beyond repair and divorce or separation is inevitable, it is best to work with a lawyer. Choose one that specializes in complicated cases and can help you divide business assets.
Final Comments
Dividing your business assets and interests can be difficult after a divorce. However, if you can identify and protect your investments early on, it will be more straightforward.
