Divorces and Business Ownership

Eric and Ariel made the sad decision to file for divorce after 19 years of marriage. Since before the two were married, Ariel has had a business collecting and selling different collectibles. However, she is concerned about what will happen to her business now that she is getting a divorce. Since she had it prior to being married, will it be split between her and Eric, or does it only belong to her? It depends, really.

A business will be considered an asset in the case of a divorce. However, how it will be divided will depend on a number of issues, including state legislation, whether the firm is considered to be marital property, and the presence of a prenuptial agreement. To understand more about divorce and business ownership, continue reading.

Determining Marital Assets

The designation of a business as separate or marital property is the main determinant in deciding whether it is subject to property division. Marital property, which is more intricate than it looks, is the collective possessions of a married couple.

The first factor is state law, which typically defines marital property as either community property or property subject to equitable division. Second, how the property is finally classified can vary depending on how it is handled and even what happens to it during the course of a marriage.

Prior to filing for divorce, it’s crucial to ascertain whether the couple resides in a state that follows the equitable distribution or community property model. Property that each spouse owned before the marriage is distinct property in states where community property is the law. Almost all property acquired during a marriage is joint property of the spouses. Of course, there are exceptions since the law is never straightforward. Any gifts or inheritances granted to one spouse during a marriage are regarded as separate property, though their classification may change if they are combined with common assets.

Property partition is more complicated in jurisdictions with equitable distribution since a court determines how it will be done. Naturally, there are rules established by state law on how the property should be distributed. Furthermore, the concept of equitable distribution holds that property should be distributed “fairly,” though not necessarily equally.

When Is a Business Marital Property in the Case of Divorce?

If the spouses jointly own the company, it will be regarded as marital property. But it is not the only circumstance in which a corporation will be deemed to be marital property. It is possible that a firm that was founded after the couple’s marriage will be regarded as marital property.

Businesses created by one spouse before to marriage may not necessarily be regarded as marital property. For instance, if the non-owner spouse made contributions to the firm throughout the marriage, it may still be considered marital property. It’s vital to keep in mind that “contributed” might refer to both direct labor contributions to the business and caregiving while the owner operated the enterprise.

Prenuptial Agreements and Business Ownership Protection

A prenuptial agreement is the greatest approach to guarantee that a business is not included in the split of assets after a divorce. Of course, it’s possible for a spouse to start a business after they get married, in which case a prenuptial agreement couldn’t include it. To explicitly identify business ownership, it might be conceivable to enter into a postnuptial agreement, which is similar to a prenuptial agreement but takes place after the couple has already been married.