Businesses represent thousands of hours of hard work, and people rightly worry about what will happen to this business when the divorce. The bad news is that their soon-to-be-ex could become a part owner of the business—even if he or she never lifted a finger to help out around the office.
Fortunately, we have seen countless clients manage to hold onto business even through a divorce. As seasoned Ohio divorce lawyers, we understand how to protect your investments in the event of divorce. Contact us to learn more.
The Business Could Be Marital
How is it possible for a husband or wife to gain equity ownership when they never did anything for the business? Easy. If the business—or part of the business—is considered marital property, then your spouse could own a share when you finally divorce.
Generally speaking, property is marital if it was obtained while married. So if you opened your business after walking down the aisle, then it is considered marital property. Under our state’s equitable division laws, marital property is divided fairly, which often means it is divided 50/50. Your husband might never have gone on a bridal shoot, but if you opened your photography business after marriage, this means he could own a chunk of it as part of the divorce.
Even a business started before marriage could partially be marital. Most businesses grow over time—gaining new clients, buying equipment, becoming more valuable. If your business increases in value while married, then this increase could be marital.
You Can Keep Your Spouse from Becoming an Owner
There are certain things you can do to keep your spouse from ever becoming an owner, even if the business is marital. For example, we can negotiate a property division agreement where your spouse gets other off-setting property, leaving you sole owner of your business.
For example, you might have started a dental practice after marriage. It is now worth $500,000, and your spouse will probably get half that. However, you can give him or her $250,000 in other property, such as real estate, investments, or retirement accounts. This allows you to leave the marriage as full owner of your business.
In some cases, an agreement is not possible. Still, we can argue to the judge that your spouse should be forced to accept other off-setting property. Judges typically understand that making a spouse a part-owner could spell disaster for any business. Consequently, they might agree to give your spouse other marital assets.
You Might Need to Buy Out Your Spouse
What happens if you don’t have other marital assets to give to your spouse? This is not unusual. Some couples pour all available income back into the business to make it grow. They don’t have anything else to their name—no home, no investments, etc.
In this situation, you might need to get a loan or come up with an installment agreement with your spouse to buy out his or her share. This isn’t ideal. You’ll probably end up paying interest, which increases the cost over time. But becoming co-owners going forward isn’t a great choice, either.
See if You can Divide the Business
Dividing a business makes sense in some limited situations. For example, you might both be professionals who work there. If you are both dentists running a dental practice, then dividing the clients could be sensible. Dividing a business is most feasible when you run a virtual business so there is no office or office staff that need to be split up.
You Can Continue to Run Your Business Smartly
You do not have to suspend all operations while getting divorced. Instead, you should continue to accept new clients and generate income for yourself. However, you will need to take some smart steps:
- Insulate the business from your soon-to-be-ex, if possible. You don’t want your wife coming into the office and poisoning the staff against you. You also don’t want her going on social media and trashing you. Limit his or her contact.
- Get the court’s help, if necessary. A judge might need to limit your spouse’s ability to badmouth the business or talk about you to the media.
- Avoid making big moves, like an acquisition or merger, until you receive your final divorce decree. There is no reason to increase the value of the business so that your spouse gets a bigger chunk.
Selling the business is absolutely the last option, and we do everything possible to keep your company in your name. Contact Lawrence Law Office to learn more.