What Happens to Your Business in a High-Asset Divorce?

Divorce is difficult, but when you own a business, the process becomes even more complex. In high-asset divorces, dividing a business can be one of the most contentious and challenging issues. Whether it's a family business, a small company, or a larger corporation, understanding how the courts approach business division and how you can protect your business interests is crucial.

In this post, we’ll break down what happens to your business during a high-asset divorce and offer practical advice on how to navigate the process.

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1. Is Your Business Considered Marital Property?

In many high-asset divorces, the first question is whether the business is considered marital property. In most states, anything acquired during the marriage is considered marital property. If you started your business during the marriage, the company may be subject to division between you and your spouse.

However, if the business was established before the marriage, it might be classified as separate property. But, there are exceptions. For example, if your spouse made significant contributions to the business or if the business’s value increased during the marriage due to joint efforts, the court might consider it marital property.

2. Valuing the Business: Fair Market Value

One of the most challenging aspects of business division is determining its value. The court will typically order a business valuation to determine its fair market value. This can be done through a forensic accountant or business valuation expert, who will assess the business’s assets, liabilities, and earnings potential.

The valuation may include:

Tangible assets: Real estate, equipment, inventory, etc.

Intangible assets: Goodwill, intellectual property, patents, etc.

Income potential: Future earnings and profitability projections.

The valuation can significantly impact how the business is divided. It’s essential to hire an experienced business evaluator to ensure that the valuation is fair and accurate.

3. Can You Keep the Business?

Many business owners hope to retain control of their business after a divorce. While it is possible, it may not be easy. Several factors can influence whether or not you can keep your business, including:

Prenuptial or postnuptial agreements: If you signed an agreement that outlines the division of assets, this could determine how your business is treated.

Compensation to your spouse: If you want to keep the business, you may need to compensate your spouse with other assets or a lump sum payment to ensure they receive an equitable share of the marital property.

Ownership structure: If the business has multiple owners, such as in a partnership or corporation, dividing the business may require you to buy out your spouse’s share, or in some cases, sell the business altogether.

4. The Impact of Debt and Liabilities on the Business

In addition to the assets, businesses may also carry debts and liabilities. These debts may be divided between the spouses in a divorce, and depending on the nature of the business, they can impact your ability to maintain control. If the business is heavily in debt, it may be more challenging to retain ownership.

In such cases, it’s essential to work with your attorney and financial professionals to assess how the business debt will be divided and what the financial implications will be for both parties.

5. What Happens If Your Business is a Partnership or Corporation?

If you share ownership of the business with one or more partners, the division becomes even more complicated. The court may order a buyout, which requires one spouse to buy out the other spouse’s share of the business. Alternatively, the business could be sold, with proceeds split between the spouses.

The process will be influenced by the terms of any partnership agreements or corporate bylaws that dictate how business ownership and control are handled in the event of a divorce.

6. Strategies to Protect Your Business in a Divorce

While some of the outcomes are out of your control, there are several strategies you can use to protect your business:

Prenuptial or postnuptial agreement: These agreements can clearly define how your business will be treated in the event of a divorce.

Separate property: If you started the business before marriage, keeping your finances separate may help prove that the business is your separate property.

Valuation protections: Working with a business valuation expert early on can help you establish an accurate and fair market value for your business.

Buy-sell agreements: If you have business partners, a buy-sell agreement can ensure that your spouse will not become a partner if you get divorced.

7. Consult with Legal and Financial Professionals

Navigating a high-asset divorce is a complex process, particularly when a business is involved. It’s essential to work with a skilled divorce attorney who has experience in high-asset cases, as well as financial professionals such as forensic accountants and business evaluators to ensure that your interests are protected.

Conclusion

Dividing a business in a high-asset divorce is a multifaceted and often contentious process. Whether the business is a sole proprietorship, a partnership, or a corporation, it’s important to understand how the courts will handle the division and what steps you can take to protect your business.

If you’re facing a high-asset divorce and need guidance on how to handle your business assets, reach out to Attorney Michael Capleone for a consultation. My experience can help you navigate this difficult process with the expertise and strategies necessary to protect your business and financial future.

Need more help? Download my guide on: The Basic Guide to Prenuptial Agreements: https://legalista8.gumroad.com/l/bgkyn

Want personalized help? Visit my website: https://attorneymlc2003.wixsite.com/website

Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Every case is unique. For legal guidance tailored to your situation, please consult an experienced family law attorney licensed in your state.