When people think of a divorce, they often think about what will happen to the children and the property. However, not everyone realizes that your business can be considered a marital asset.
With that in mind, here are five things business owners should keep in mind when getting a divorce:
What type of entity – Corporation, Partnership, LLC, or Sole Proprietorship?
It is important to determine which type of entity you own or have an interest in. If you own an interest in a corporation or partnership, then the court will award the interest in that entity, rather than the individual assets. On the other hand, if you own a sole proprietorship, then the business, along with all the business assets, are subject to division by the court.
Is the business mine, ours, or a combination?
Separate Property or Community Property
The timing of the formation of the business is crucial to determining the character of the business. If the business was created or acquired by you prior to the marriage, then it is your separate property. However, if the business was formed during the marriage, it is presumed to be community property. That said, you should speak with an attorney to determine how to properly characterize your specific business or interest.
Depending on the type of entity, piercing the corporate veil allows the divorce court to characterize as community property corporate assets that would otherwise be considered the separate property of one spouse.
Valuation – leave it to the experts
Placing a value on a business can be complicated and involve multiple layers. For example, the type of business will impact the method of valuation, as there are several. In addition, non-compete agreements, buy-sell agreements, minority interests, etc., can all impact the value of the business. As such, it is best to leave business valuations to the experts in the field.
Division – how could the business be divided?
At the end of the divorce, the business could be awarded in the following ways:
- The entire business or interest to one party at value.
- To both parties with co-ownership after the divorce.
- A receivership- If the business or interest cannot be awarded to just one party, then the Court may order it to be liquidated.
After the Divorce – things to consider
Depending on who retains ownership, there may be a need to revise operating agreements or other corporate documents. Just because you were awarded the business, doesn’t mean that the work is done.
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