Is Your Business Marital Property?
Depending on whether the business is marital or separate property, your spouse could be awarded partial ownership or half the value of your business. Alabama is an equitable distribution state, which means that if left to the courts, marital property will be divided equitably, not equally or 50/50. During the proceedings, all property will be divided into two categories: marital or separate property. Separate property includes assets that you obtained prior to the marriage, while marital property includes anything you obtained during the marriage. Either party can exclude the following from being classified as marital property:
- Inheritance
- Compensation related to personal injury claims
Even if you started the business before your union and the property seems like it would be separate property, it can be classified as marital property if:
- Your spouse contributed to the business in some way. Some separate property could become marital property if the other party contributed to its financial upkeep, so you will need to prove that the other party didn’t help the business grow or function if you don’t want to risk your spouse claiming entitlement to a part of your business.
- Money from the business benefited the marriage.
How Can You Protect Your Business in Divorce?
To protect your business (and other important assets) in a divorce, you should consider:
- Drafting a pre- or postnuptial agreement. While no one wants to believe that their marriage will end in divorce, having a prenup (or postnup) allows couples to work out how property will be divided and cut down on stress in the event that they later separate. If you have business partners or investors, they may even require you to create an agreement.
- Filing for an uncontested divorce. Before filing, you and your partner will need to agree on a lot of major issues, including property and debt division, alimony, and child custody and/or support. While this may seem difficult, you can work with a mediator and your attorneys to amicably divorce. As you iron out the details, you can negotiate and make concessions to protect your business.
- Avoid commingling separate property. If you come into the marriage with the business, try to avoid bringing your partner into the business operation. Also, keep the business funds as separate as possible.
- Work with our experienced attorney. We understand how to help clients protect their assets and interests. With our firm grasp on asset division and the law, we can help you understand your options.
How Business Division Could Look in Your Divorce
If your business is subject to division, you may have to:
- Sell the business. While you would lose control of the business, liquidating the business’ assets can make it easier to divide them.
- Buy out your partner. If your partner has interest in the business, try to purchase it.
- Remain business partners. While it may not be the best option for couples who do not see eye to eye, divorced couples can benefit financially from remaining co-owners or business partners.
Business Valuation in Divorce Cases
If one or both spouses are business owners, there will be a business valuation, which will be used to determine how much a business is worth and what the business owner’s salary is. It is important to know both of these figures as courts factor this information into property division decisions. Each party’s income is also important as that can affect child support and custody, as well as alimony orders.
One party or both should hire a business valuator (like a CPA or forensic accountant) who should consider the following as they evaluate the business:
- Expenses
- Debts
- Tangible and intangible property
- Income
- Depreciation
Some couples try to figure out the business’ value on their own; however, we do not recommend you do this considering how impactful the valuation’s results can be on your financial future.
Contact Shaw Family Law Today
Don’t leave your case, financial future, or business in just anyone’s hands, which is why you should contact our experienced team. At Shaw Family Law, LLC, our legal team will work with your best interests in mind and have the experience needed to help you best navigate your divorce and business valuation.
Attorney Paul B. Shaw, Jr. has a wealth of experience in handling family law matters, including those involving businesses and high-asset divisions, and our legal team can help you:
- As the business owner, to protect your business in court litigations or negotiations
- As the other party, to ensure the business valuation is handled correctly
- As either party, to work alongside you and offer legal counsel as you navigate the divorce process