If you own a business, it is important you understand how asset division works, even if you do not expect to get a divorce. This is because your spouse may be entitled to part of your business, which could have a devastating impact on the business’s ability to succeed if you ever do get divorced.
A business owner who does not plan ahead for the possibility of divorce can be forced to sell his or her business or share ownership of the business with an ex-spouse. Alternatively, a business owner may be forced to give up other assets in divorce in order to keep the business.
Assets are not always divided equally
Community property generally includes any assets or debts that were acquired during your marriage, regardless of which spouse acquired them. This could include your business or business assets.
Items that are determined to be community property must be divided equitably during divorce. Equitable division is not necessarily equal, though. Equitable division is based on what is considered fair in a couple's individual situation.
Most of a couple’s assets and debts will be considered community property unless a spouse proves that something is separate property. Separate property is generally any asset or debt that was acquired before the marriage. Separate property also includes inheritances and gifts that were given to only one spouse, even if that occurred during the marriage. Separate property usually does not have to be divided between spouses during divorce.
The best protection is to plan ahead
If you have a business before you get married, a prenuptial agreement can be created to help protect your business in the event of divorce. If you are already married, a postnuptial agreement may offer the same protection.
In a prenuptial or postnuptial agreement, you can specify that your business should be considered separate property. Alternatively, you could specify how you and your spouse want to handle the business in the event of divorce. For example, one spouse could buy out the other.
Other ways to help protect your business, include:
- Maintaining sole ownership of the business
- Keeping personal and business expenses separate
- Clearly recording the sources of money used for the business
People don’t get married and expect to eventually divorce. However, divorce can have a devastating impact on a business. To help prevent that from happening, it is important you understand how assets are divided in divorce and take action early to protect your interests.