Dividing property is frequently one of the most pressing aspects of a divorce. Spouses have to split up their shared resources and joint financial obligations. That process can often result in intense conflict, as spouses may disagree with one another about what is fair or even necessary. For example, if one spouse owns a small business or professional practice, they may intend to claim the business as separate property. The other spouse may want to request a portion of its value in the divorce.
Is it possible to claim that a business is separate property for the purposes of asset distribution during a divorce?
Businesses may start as separate property
Separate property belongs to one spouse and is typically not subject to division during a divorce. Certain types of assets are typically separate when married people divorce. Assets that they owned before getting married might be separate property. People can also frequently protect assets that they receive as an inheritance as separate property.
If the business owner or licensed professional had already established their business before getting married or inherited it from a loved one, they may expect to retain the business as their separate property when they divorce. However, commingling could prevent them from accomplishing that goal.
Businesses required reinvestment
Some small business owners and professionals who own their own practices negotiate prenuptial agreements before getting married. Those who inherit businesses during a marriage may propose a postnuptial agreement to protect the organization.
If spouses have signed an agreement designating the business as separate property, then they may be able to treat it as such when they divorce. Otherwise, they may need to review financial records thoroughly to determine if commingling occurred.
Spouses typically have an interest in assets acquired during the marriage and any income earned by either spouse. While the business may have been separate property at the time that the spouses married, the spouse owning and operating the business may have chosen to reinvest in the company. The use of marital income to improve or maintain the organization is a form of commingling.
So is extending an ownership interest to a spouse. Even allowing them to perform unpaid labor for the benefit of the company might lead to them asserting that commingling occurred and they have a partial interest in the business.
Business owners hoping to protect their organizations and finances as they prepare for divorce may need help, and that’s okay. Determining whether a company is separate property or marital property may be the first step in the development of an effective divorce strategy.
