Jul. 25, 2022
Determining a Business as a Marital Asset in Divorce
Businesses often operate as their legal entity, except in the case of a small business where a married couple is the owners or in a partnership. This is often the case in sole proprietorships, limited-liability corporations, and partnership agreements. Generally, wherever the individual spouses have a legal title of ownership to the business, it becomes part of their estate. If the created business role started during a marriage or has grown in a marriage, then that interest becomes an asset in the marriage and divorce as well. In many circumstances, a business can be an asset in a divorce when you own a business together but not in all cases.
Marriage Assets
Legally, assets are property, personal, or real estate.
In marriage, the assets are those things that have come into the marriage ownership through purchase, earning, gifts or inheritance.
As they enter, aside from the exceptions created by pre-nuptial agreements, the assets become shared property in the marriage. For example, if they bought a vehicle in a marriage, both spouses have the right of ownership even if registered in the name of one of the spouses only.
Many states title this automatic ownership as community property.
Calling in a divorce attorney in Greensboro, NC expert like Mercedes Chut is helpful for asset determination.
Business Assets in Divorce
As a married couple, business owners distribute the business income and profit equally but folks rarely split the dollars down to the penny.
What comes out of the business as personal income becomes household income. If they put money into the business, they both have a stake in the investment as well.
So, no surprise, the couple equally owns the business assets obtained and owned by the business.
Where this would be different, however, is if the business is bigger than a sole proprietorship or in a divorce and LLC business where both spouses are on the LLC board.
Instead, in a partnership or corporation involving other players, the assets are then shared as defined by the partnership agreement or corporation by-laws. The business authorities define the limits of the role of the spouse based on his/her stakes.
So, in a divorce, the same would happen regards to the reach of assets. The court can only impact what the spouses have the title to personally.
If they only have a combined 20 percent ownership with other parties, the divorce can only split the 20 percent.
How are Business Assets Divided in Divorce?
Distributing business assets in a divorce may depend on the defining title proration or one spouse buying out the other for full ownership.
How much those figures are depending on the independent valuation of a divorce business. Identifying the assets may base on either book value (original cost minus liability) or their market value or what they would obtain if sold on the day of evaluation.
An appraiser determines it and validated it in court filings.
A CPA can calculate small businesses’ assets, but a corporation or large business usually needs an auditing team to certify the financial review.
Could I Lose My Business in a Divorce?
If a business and its assets are equally split in a divorce, that doesn’t automatically result in the business getting lost.
However, a lot depends on whether the business existed before the marriage and the presence of other players, as noted above.
In Partnerships or Corporations
Where a spouse might have had a controlling interest while married, that may reduce to a minority ownership position after a divorce.
The combination of the spouses’ ownership together becomes weakened as they separate. And, this change over time could result in a loss of majority control of the business.
How well the separated spouse networks with other partners or stakeholders makes the defining difference. The court can only split what the spouses own. The use of assets afterward is not involved in the divorce.
Divorce Lawyer: Mercedes Chut
As a divorce lawyer in Greensboro, and an expert in business asset separation—Mercedes Chut provides an extensive amount of experience and knowledge for separating business interests, especially where the business itself is viable and can keep going.
Call now and protect your business in a divorce with Mercedes Chut.
