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Dividing a Business in a Divorce: The 3 Factors That Matter Most

The divorce process includes a list of challenging decisions the spouses have to make. If they cannot agree on mutually beneficial and acceptable decisions, the future divorcees take the negotiation to court. Commonly, dividing a business in a divorce is one of the top complex procedures regarding the finances and interests involved. Nevertheless, you can finalize the process simpler if you get prepared and count the most important factors in advance. 

  1. Type of Divorce

The first thing that matters when it comes to divorce and business owners is the type of divorce they opt for. There are two ways you can terminate your marriage in:

  • Uncontested divorce – this means you and your spouse can come to terms about major divorce issues (custody, visitation, assets division, etc.) on your own and validate everything in the divorce settlement agreement. You can involve the specialists such as mediators, financial advisors, evaluators, etc., to make suitable decisions in the end. You can also apply to an online divorce service to get divorce papers organized quickly and for peanuts. Overall, with an uncontested divorce, you will save your business, time, money, and health from a severe waste. 
  • Contested divorce – in case you cannot agree on any of the divorce details, you will pass your case to the court and prepare to negotiate there. Then the judge will be the one to draw the divorce-related decisions for you, based on the evidence and points of view you present and the local legislature. This means your assets and business division may not suit your interests and preferences. 

Your preferred option is an uncontested divorce. You will have the chance to save your business by creating a mutually beneficial solution for you and your spouse.

  1. Local Legislature

If you cannot agree with your spouse on how to divide assets in a divorce without third parties involved, it is time to move your case to court. There, your business and other assets will be distributed according to local law. Depending on the place of your residence and divorce filing, your assets, including your business, will be divided according to one of the following principles:

  • Community property – nine community property states will divide your business 50/50 no matter the surrounding conditions and factors. This is one of the worst divorce aftermaths for your business. 
  • Equitable distribution – the rest of the state courts will divide your assets and business fairly. This means your involvement in the business, role in the company, initial commitment, etc., will be taken into consideration to distribute the assets respectively.

If you are under community property legislature, the outcomes will be far from pleasant for you and your business. Still, equitable distribution doesn’t guarantee your success either. Your views of fair decisions won’t be the same as the judge may have, so that you may get no benefits in the end. 

  1. Type of Property

Another significant factor to take into account when getting a divorce and splitting assets is the type of property your assets belong to. When enlisting the assets you own together with your business, it is essential to classify whether it is your personal or community property:

  • Personal property – it includes all the assets that belong to one spouse only, everything that was acquired before marriage, inherited, or explicitly gifted to one spouse. You can refer to your business as personal property in case you agree on this in the prenup or postnup agreement with your spouse. 
  • Community property – it covers all the assets acquired in marriage. Anything that was purchased for a combination of personal and joint-funds is also deemed as community property. So, if the business was your personal property, but both you and your spouse committed to it during the marriage, your business will be referred to as community property and distributed according to the local legislature. 

Before dividing a business in a divorce, it is vital to consult a specialist to determine whether your company and business assets are personal or community property. In addition, a professional evaluator will help you to come up with the exact value of your business assets. This information may be crucial in the further divorce process. 

No matter what divorce strategy you select to save your business through the divorce process. Whether you choose to go for divorce and bankruptcy at the same time or sacrifice any other valuable assets, you won’t be able to calculate further steps if you don’t figure out the basics. Discuss with your spouse what type of divorce you are up to, research the local legislature and what it says about property distribution, define what type of property your business belongs to, and only then you should come up with a plan that will guarantee the best aftermath for you and your business.

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Shashank Jain, founder of good-name, a young and energetic entrepreneur has always been fond of technology. His liking for technology made him go for engineering in computers. During his studies, he learned & worked on different computer languages & OS including HBCD, Linux, etc. He also has a keen interest in ethical hacking.

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