Some couples are partners in marriage and partners in business. If the business is marital property, it will be divided equitably between the spouses if they decide to divorce.
Marital property
Generally, marital property includes property acquired by either spouse during the marriage. However, it may be difficult to determine whether the business is marital property or separate property, meaning it belongs to just one spouse.
The court may consider several factors, including when the business was established and whether both spouses contributed to the business while they were married. If the business was established by one spouse before the marriage, the court may consider that it is separate property.
It may also review whether the spouses had a prenuptial agreement that addresses how the business division would be handled in the event of divorce. Finally, even if the business itself is determined to be separate property, if the business increased in value during the marriage, that increase may be considered marital property.
Business valuation
Before the business can be divided, it must be valued by a professional. This person may use several methods.
The income approach evaluates the potential future earnings of the business to determine its value. The market approach compares the business with other businesses that have been sold recently to estimate the value. The professional may also use the asset approach, which values the assets of the business.
The spouses should be prepared to provide financial information, like tax returns, business bank account statements or other documentation for the professional to review.
If one spouse wants to keep the business, they may have the option of buying the other spouse’s share. If they want to sell it, they can divide the proceeds in the divorce.
It is important that the business valuation is accurate so that the property can be divided equitably.