When someone owns a business, they often consider it theirs alone. During a divorce, however, several factors determine whether the court will classify a business as separate property, or as marital property that must be divided.
Could your ex be entitled to a business you own, or vice versa? It’s certainly possible.
Marital property is property acquired during the marriage. If the business was started during the marriage, then it is most likely marital property. In Missouri, marital property is subject to “equitable distribution” which means that it must be divided in a way that is fair, though not necessarily equal. The court will want to know:
When was the business acquired or started?
- After marriage: Even if both names are not on the title, a business that began after the couple was married could be considered marital property.
- Before marriage: Something owned prior to marriage, received as a gift or through inheritance, is typically “set aside” to its owner as non-marital property. But with a business, there are exceptions, which the next questions address.
How was the business acquired or funded? It likely will be classified as marital property if either spouse contributed to its purchase or start-up costs.
Did the non-owning spouse contribute to running the business? Paid and unpaid time, labor, expertise, and ongoing financial assistance are among the contributions that may entitle a spouse to a share.
Is there a prenuptial or postnuptial agreement? The best way to ensure that a business is considered off limits in a divorce is to have the rights to it spelled out in a legal prenuptial agreement, or in a postnuptial agreement drawn up after marrying. Carefully review the terms of the agreement with an attorney.
Valuation A business is an asset, and must undergo a complete and truthful valuation when a couple is divorcing. As we’ve described before, deliberately undervaluing a business in order to hide assets in a divorce is never a good idea–the penalties can be harsh. Keep in mind that having a business valued for a divorce will often produce a different result than valuing a business for sale or estate planning purposes. It is important to ensure that you attorney is familiar with valuing a business and has experience working with business valuators in the divorce context.
At Raza Family Law Solutions, we practice family law effectively guiding clients through dissolution of marriage, modifications of prior judgments, and resolving child custody disputes. We also help families take a different approach to divorce with mediation and collaborative work. Contact us for a consultation at (314) 314-5505.