Divorce often brings complex issues, especially when it involves a business. Many entrepreneurs understandably worry about losing their business during a divorce.

Understanding the factors that influence the division of marital assets can help ease some of that anxiety.

Understanding Asset Division

When couples divorce, the court divides their marital assets. These assets include homes, cars, savings and businesses. The court’s goal is to ensure a fair distribution. This does not always mean a 50/50 split, but rather an equitable one based on several factors.

How Asset Division Can Affect a Business

First, the court will determine if the business is marital property or separate property. Marital property includes assets acquired during the marriage. Separate property includes assets owned before the marriage or acquired through inheritance or gifts. If one spouse started the business before the marriage and kept it separate, the court might consider it separate property. However, if the other spouse contributed to the business, it could be considered marital property.

The court will also look at the role each spouse played in the business. If both spouses actively worked in the business, the court might consider it a joint asset. If only one spouse worked in the business while the other managed the household, the court might still view it as a marital asset because of the indirect contributions.

The Importance of Business Value

Another factor is the business’s value. The court may hire a professional to appraise the business. This valuation will help determine how to divide the business’s worth. Sometimes, the spouse who owns the business might buy out the other spouse’s share. In other cases, the court might order the business to be sold and the proceeds divided.

Other Marital Factors

The length of the marriage also matters. Longer marriages often lead to more entangled finances, making it harder to distinguish between marital and separate property. In long-term marriages, the court might lean more towards dividing the business as a marital asset.

Finally, the court considers each spouse’s financial needs and future earning potential. If one spouse relies on the business for income, the court might ensure that the spouse retains the business. Alternatively, the court might provide compensation through other assets.

Divorce involving a business is complex, but understanding the process can help ensure that your soon-to-be ex-spouse does not walk away with your business assets. Knowing how courts view businesses in divorce can lead to more informed decisions and better planning for the future.