Key Takeaways
- Divorce becomes more complicated when you own a business, even if it may be nonmarital property.
- You can protect a business by signing a prenuptial agreement prior to getting married.
- You can negotiate with your spouse to keep the business by buying them out or trading other assets for their interest in the business.
In the divorce process, businesses are fair game for property division unless included in a prenuptial agreement to ensure it is separate property. If you are required to divide your business pursuant to equitable distribution rules – or even by half in community states – that can mean a major portion of your income goes to your ex-spouse.
The experienced family law attorneys at Cordell & Cordell can guide you through the divorce process and, depending on your situation, help create a strategy to protect your business from divorce.
Understanding the Risks
Because a business is an asset, divorce laws can impact ownership and business assets. Whether your state is an equitable distribution state or a community property state—all marital assets are subject to property division laws. If you started or acquired a business during the marriage, it is subject to property division. Even if you ran the business prior to marriage and your spouse’s name is not on the business—it may still be subject to property division if you commingled funds.
Divorce can cause interruptions to business as it takes your attention away from day-to-day responsibilities. Court appearances, phone calls, and responding to correspondence regarding the divorce all cut into time that should be focused on your business. Even meetings with your attorney and appointments for property appraisers are an interruption.
Your employees may also become distracted if they have to deal with appraisers and help gather business documents for the discovery process.
The divorce can also affect business partners, depending on how you distribute part of it to your ex-spouse. If you are forced to dissolve the business, which is not common but can happen, it will affect not only your life but the lives of your employees.
Finally, one of the biggest disruptions may be valuation disputes and the need for a forensic accountant and other experts to determine the value.
Pre-Divorce Planning
You can take steps prior to marriage to protect your business in the event of a divorce.
Prenuptial Agreements
If you purchase or start a business prior to marriage, you can create a prenuptial agreement when deciding to marry. The agreement explains your expectations for the business during marriage and ensures that it remains your separate property in the event of divorce.
Do not count on solely keeping funds separate. While the business would most likely remain yours, any increase in value would most likely be viewed as marital property. A prenuptial agreement can avoid that possibility.
Business Structure
Creating a business structure, such as a corporation, can protect business assets in a divorce since they clearly belong to the company instead of you, personally. However, the actual business is an asset, which means it is still subject to equitable distribution.
By creating a business structure when you start or acquire your business and keeping excellent documentation of when you purchased or sold business assets—can help protect your business should the marriage fail.
During Divorce Proceedings
Protecting your small business during a divorce is more than having a prenup or a postnuptial agreement. If the agreement was improperly drafted , or you do not have one—you can take some steps to protect your business during the divorce.
- Full financial disclosure: If you do not provide full financial disclosure for your business, your spouse could accuse you of hiding assets. If the court believes them, it could cost you more in contempt fees or even a larger portion of the assets being awarded to your spouse.
- Legal representation: If you own a business – or even part of a business, you need a divorce lawyer who has experience in handling business law and divorce. When you work with a firm such as Cordell & Cordell, you receive attorneys who have experience in business law and divorce law to help protect your business interests and secure your financial future.
- Negotiation and settlement: Not all is lost if you do not have a prenuptial or postnuptial agreement to protect your business. In many cases, you can buy out your spouse’s interest in the business, “trade” other assets for their share, or make other arrangements so you can keep your business and ensure continued business operation.
- Litigation: In some cases, litigation may be necessary when your spouse refuses to agree to other options so you can keep your business running or if you do not have enough assets to trade or buy them out. Cordell & Cordell has experienced litigators to advocate for your rights in court.
Post-Divorce Protection
After a divorce, it’s necessary to protect your business, especially if your ex-spouse receives a percentage of the profits. You can further protect yourself by maintaining excellent business records, periodically updating and reviewing business documents, while working with a financial planner or an accountant. Should your ex-spouse take you back to court on allegations that you are not paying a fair share, you will have updated business documents and documentation from your accountant and financial planner to thwart what may be baseless accusations.
Additionally, you need to enlist the help of an experienced estate planning attorney to amend your estate plan after a divorce. Forgetting to remove your ex-spouse from an estate plan could mean that they receive property, including your business, that you may have planned on giving to your children or dividing among your partners.
Why Work with Cordell & Cordell
When you have a business, a divorce lawyer with experience in business ownership and business valuation can help protect your venture.
Client Experience
“Cordell and Cordell has it figured out and streamlined. I liked that I could see everything on the website including documents I had turned it. My attorney was great. She was attentive and responsive. She was on top of everything.” — Richard G.
”She was amazing. She did a really great job. She was my divorce attorney and my ex even said he would give her 5 stars. She was phenomenal.” — Caitlyn S.
Divorce Can Be Complicated, Especially for Business Owners. We Can Help.
Cordell & Cordell is a national family law firm that guides individuals through a range of family law issues. Contact our team today at 866-323-7529 or fill out our online contact form to schedule an initial consultation.
Disclaimer: This page serves as a resource and is not to be taken as legal advice.
Frequently Asked Questions
Co-owning a business with your spouse makes it more difficult when the time comes to separate or divorce. Even if your spouse is not active in the business and it does not have their name on it, divorces with a spouse who owns a business can become complicated—when one spouse wants to keep the business to protect their financial future. While there are many solutions to protecting your interests such as buying your spouse’s share, they may not agree. Cordell & Cordell can help you plan a strategy that addresses your circumstances.
If you owned or started the business prior to marriage and did not commingle business assets with personal assets, it may not be considered marital property. However, that is often difficult to do, especially if the business is a sole proprietorship. If you bought or started the business during the marriage, it is most likely marital property.
There is always a chance of losing a business during a divorce. If you and your spouse cannot reach an agreement either on a buyout or trading their interest with other assets—you most likely cannot run it together, especially if the divorce is contentious. The court could order you to sell the business and divide the proceeds.
You could also lose part of the business if the court orders you to pay your ex-spouse a percentage of the profits or award them with stock.
Mediation is always helpful. A neutral third party assists you and your spouse in facilitating an agreement in order for you to keep the business. You can avoid a lengthy trial if you are able to reach an agreement on all of the issues involving the divorce, including child custody, personal asset division, business division, spousal support, and child support.
You can also avoid further business interruptions required during the divorce, such as court hearings, attorney meetings, completion of divorce documents, and more.
Written by Joseph E. Cordell
Joseph E. Cordell is the Principal Partner at Cordell and Cordell, P.C., which he founded in 1990 with his wife, Yvonne. Over the past 25 years, the firm has grown to include more than 100 offices in 30 states, as well as internationally in the United Kingdom. Mr. Cordell is licensed to practice in the states of Illinois and Missouri and received his LL.M. from Washington University in St. Louis, Missouri. Joseph E. Cordell was named one of the Top 10 Best Family Law Attorneys for Client Satisfaction in Missouri.
