Divorce is an unfortunate reality for many New Yorkers. It can impact every area of your life, including your business.
Even if your spouse isn’t listed as an owner of the business on any of the paperwork, your business may still be considered an asset subject to division during a divorce proceeding. Depending on several factors, your soon-to-be ex-spouse may be entitled to some of the profits, if not more.
Why would your spouse have a right to the business?
Marital property in many states is defined as any income and assets that were acquired by either spouse during the marriage. So, if you started your business while married, there’s a chance the business is considered marital property. In some states, all marital property is split 50/50 unless there’s good reason to the contrary, but in most states, all marital property is split through a process called equitable distribution.
What is equitable distribution?
Equitable distribution involves consideration of each spouse’s circumstances, and a court divides the assets based on a variety of factors. The process can be very costly for some business owners. Even if you didn’t start the business during the marriage, your spouse may still be entitled to profits.
What if my spouse was a stakeholder or owner?
Splitting businesses becomes even more complicated if both spouses were owners. If one or both spouses don’t agree to terms, it can lead to a lengthy legal battle. If they sell their stock to an outside party, it might even hurt the day-to-day operations of the business.
Keeping your business safe
As a business owner, you’ll want to take steps to protect your business before it’s too late. Some business owners will get a prenup or put their business into a trust so it can’t be split, but everything needs to be done in a completely legal, legitimate manner.
It can be hard to make financial decisions amid a divorce, which is one of the reasons it’s important to have a plan for your business now so you can make the best decisions for your future.