Divorce and Business Assets

By WomansDivorce.com 

When you are getting a divorce and business assets are part of the picture, dividing the marital property becomes more complicated. What you are entitled to and what is considered separate property are just a few of the questions that often come up, as outlined below:


Topic: Is he entitled to my business that I acquired before marriage?

Angela's Question: We are currently separated and going through a divorce. I came into the marriage with an existing business which continues to run today. During our separation, the business valuation significantly decreased as compared to when we first married. Is there any way he would be entitled to part of my business? When evaluating a business, is it based on the current year's contracts and potential earnings even after the formal separation date?

Brette's Answer: Property you owned before you were married is non-marital property and won't be divided when you divorce. However, increase in value of the business that occurred during marriage is likely a marital asset and is subject to division. Businesses are valued based both on current contracts but future potential earnings are also a consideration.

Is he entitled to any of my business if he never received a paycheck?

W's Asks: I am the owner of a business. This was a family owned business for 14 years before I became owner of it (3 years before I married my husband). He ended up becoming a driver with the company the year after I took over. He never received a paycheck, we just paid bills etc. We are now getting a divorce and he wants 50% of the customer base. Is he entitled to any of it? He never paid anything to purchase it and the company makes less money than it did before he started. He put no effort into the business other than showing up for work and servicing the accounts as any employee would have. He did nothing to act as a partner in the business at all. He took the work truck and all the equipment and product and drained the checking account the day I told him I wanted a divorce.

Brette's Answer: You need to meet with an attorney who has experience in family owned business and divorce. Since he did not take a salary and helped build the value of the business he is entitled to something. You may be able to reach a settlement. 

Would I receive anything from the business if we are partners?

Kathleen Asks: We own a business together as a 50/50 partnership. I am a full time mom with an Autistic son and 4 year old daughter. Would I receive Alimony or pay from the business?

Brette's Answer: There are lots of options. You could continue to own the business together if you both felt that was possible for you. If not, the business is considered marital property and the value of the business would be part of the property divided. You may be entitled to alimony and definitely child support. You should speak with an attorney who can look at the specific details of your situation and offer personal advice.

Is the rental income from property considered an asset?

Sally's Question: We own 2 warehouses and a rental house that we get income from.  The house isn’t mortgaged, but the warehouses do have mortgages.  Can I count the rental income from those properties as an asset?

Brette's Answer: It depends on whether they are set up as a business. If they are a business there are several ways to value a business, one of which takes into account income from the business. Generally, assets held in your own names would simply be valued at their market value. Talk with your attorney who can review all of your assets and explain your state laws. 

Should I continue to be part of the company after our divorce?

AC's Question: My husband has an LLC business formed before I filed for divorce. He has made significant money but has spent & continues to spend it on lavish gifts for his girlfriend - thousands of dollars' worth of gifts. We have 2 kids together & I want the company to succeed for our kids. I also want to be a part of the company like we originally planned. My attorney doesn't seem to think it's a good idea to assume part or all of the company or even be involved in the operational aspects of it. I feel strongly I should keep the company on track due to my husband's lack of better judgment on spending. What's your advice?

Brette's Answer: It is often very difficult to maintain a business relationship after a divorce, which is why your attorney recommends against it. It's often a recipe for disaster. But if you and your husband think you can work together in a reasonable way, you can choose to do so. It might be a good idea to put some stop-gap measures in place, such as an agreement to mediate or allow a third party to make decisions if you and your husband reach a point where you cannot agree.

How would my husband's partnership be divided in a divorce?

Melinda's Question: My husband owns a business partnership. I work at the business. How would this asset be divided in a divorce?

Brette's Answer: His portion of the business is considered a marital asset. How it is divided will depend on many factors such as the overall financial marital picture, debts, other assets, whether you were compensated fairly for your position at the company and so on. Good luck.

Topic: Should I wait until his business is established to file for divorce?

Maggie's Question: My husband has started 2 businesses, neither of which is making a profit yet. My attorney advised me to wait until his income is up before I file for divorce so that I'll be more likely to get more alimony and child support. The problem is that his business is in another state and I have no idea how much he is or will be making. Currently he deposits money into my checking account. But I'm worried that he'll start spending more money on his girlfriend and sending less to his family. Is there any way of finding out how much he's making and spending? If he figures out that I'm waiting on filing until he makes more money, he'll have total control and I'm a sitting duck.

Brette's Answer: Once you have filed a divorce case or begun mediation, your spouse will be required to truthfully disclose his income. If you seek child support first though, he will need to disclose his income at that point, so you might want to talk to your attorney about filing for child support now. You can also seek spousal support in the meantime if you are concerned that his voluntary payments will end. I think you should ask your attorney how long she is advising you to wait to file for divorce and when based on the circumstances in your case that you would best be served to file.

Is he entitled to a share of my business if I got it when we separated?

Cecilia's Question: I started work with a business three years ago, but didn't get paid as it was more of a volunteer position. I was asked to come onboard as an owner, but no money was needed because all the hours I spent volunteering would be considered as a down payment. At the same time, I separated from my husband and I have been on my own for the past two years. We are now filing our own divorce without lawyers. He says he’s entitled to half of my shares of the business. Is that true?

Brette's Answer: Generally assets in a divorce are divided as of the date of separation. If you did not own the business when you separated, it would generally not be a marital asset. If however you obtained your ownership shares before the separation, it could be considered a marital asset and would be divided in the divorce. Consult with an attorney who can help you understand your rights. 

Would he get half of my company if it was started after we separated?

Cheryl's Question: I’ve been separated from my husband for 5 months now. I filed the petition for divorce 7 weeks ago. We are doing an agreed divorce and have no minor kids, no property or assets we are listing on the decree. I want to start my own business now, and my tax attorney who will help with the LLC told me my soon to be ex may have the right to half of my company since the decree has not been finalized yet. Research tells me that since I have already filed the petition (and the separation date on the petition states Dec 1) that all assets obtained after either of those dates is separate property. Please advise.

Brette's Answer: Yes, that is generally true, however if marital assets were used to fund a business, then it could be divided. I encourage you to talk more with your attorney and share all of the details to get accurate advice. 

Am I allowed to make financial decisions for the store after filing?

Denise's Question: My parents gave my husband and me most of the money to open a restaurant. I have checks from them made out to the corporation. My husband is the owner. I am an employee and have signatory rights. I know it is a marital asset, but he makes irresponsible decisions. I want to know if I am now allowed to make financial decisions for the store, since our relationship has soured and I have filed for divorce.

Brette's Answer: No. Decision-making power within the company has not changed.

Should both names be on the business account in case we divorce?

Kimberly's Question: My husband just opened his own business and I am the office manager. I am not listed on the business bank account and he said he will not add me to it. He says he wants it to be his. Our marriage is on rocky ground and this does not help. Should I insist that the business account be put in both names in case we do eventually end up divorcing? What can I do to safe guard my future?

Brette's Answer: The business is a marital asset and would be divided in the divorce. Having your name on the account would make it easier for you to access funds up until a divorce, but it would not affect distribution of assets. You can read more about this at divorce bank account questions. I think that you should consider some marital counseling if you are having a hard time together.

Does my husband have any rights to my LLC?

Janni's Question: If an LLC is in my name alone but was created while I was married does my spouse have any rights to it and its assets?

Brette's Answer: Yes, it is marital property. Good luck.

Am I entitled to a percentage of my husband's business?

Carolyn's Question: My husband started a corporation after we were married, and now he says that everything in it is his. My name is not on anything. Am I entitled to a portion of his business in a divorce and how would that work?

Brette's Answer: Yes, a business that is developed during the marriage is definitely a marital asset and its value must be added into the total pot of assets to be divided. You probably aren't entitled to physically own part of the business, but you are entitled to own a portion of its value. For example, if the business is worth $50k, that goes into the pot of marital assets. If you have other assets worth $200k, then the total marital assets are $250k. That is the value that is divided. If it were divided in half, you would get assets totally $125k. Get an attorney and gather as much documentation as you can. Good luck!

Topic: What if the business lease is in his name?

Dee's Question: We rented a building downtown to open a salon for myself to work out of, and we also purchased all the equipment necessary to run it as well. I would like nothing except for the business to be mine, free and clear of him. Because the lease is in his name, what do I do?

Brette's Answer: It seems that you could either sub-let from him or go to the landlord and explain that you need to alter the lease to have your name only. You need to consult with an attorney to ensure that you walk away with ownership of the business.

Topic: Can I get a fair shake if my husband has a cash business?

Anne's Question: My husband has a business where he receives a lot of cash payments. The house and business are tied up together. I am 62 and this is our only retirement. What in the world can I do to get a fair shake financially?

Brette: You need to get a very good lawyer who will hire a forensic accountant and track down every single dime. If you think you can't afford an attorney, ask about the court ordering your spouse to pay your attorney fees.

Are assets bought with proceeds from the sale of his business divisible?

Amy's Question: My husband owned a business before we were married. He then sold that business 2 years into the marriage and bought an expensive truck, camper, motorcycle, and paid off the little bit that was left on our home. He states that the assets that he bought with the money from selling the business are PRE-marital property since they were bought with funds made from selling the business. Am I entitled to any of this?

Brette's Answer: If the funds are directly traceable to the pre-owned business, they are pre-marital assets. However, if you did anything to support that business and help it grow while you were married then a portion may be considered marital.

Are payments for a business taxable if done as a property settlement?

Lisa's Question: My husband is getting monthly payments on a business that he sold and has to pay taxes on this. He says that he is willing to give me the monthly payments as part of the property settlement. Will I end up owing taxes on this money?

Brette's Reply: You need to consult with an attorney to be sure the agreement is structured correctly as a property settlement and not alimony.

About Brette Sember - Legal Expert

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