Running a business requires commitment, investment and also personal sacrifice. Whether you started the business yourself or took over your family’s company when you finished school, running the company consumes a lot of your energy and time.
Now that you find yourself considering divorce, your business may be the asset that you care the most about protecting, perhaps even more than the home where you live. One of the first questions business owners often have during a divorce is whether their company is vulnerable to claims by their ex.
If you started the business while married, it is probably marital property, and you may have to share it. Even if you owned the company prior to getting married, it could be at risk if you committed any of the mistakes listed below.
You used marital assets to maintain the company
What you earn during a marriage is usually community property that you have to share with your spouse. If you reinvested your income during your marriage into the company, that blurs the line between what is community property and what is separate property.
The greater the amount of marital resources invested in the business, the stronger the potential claim of your spouse against the company. Using marital assets for the sake of building the business could be a dangerous form of commingling that will affect your ownership rights in a divorce.
You expected your spouse to work at the company
Running a business often means putting in uncompensated and unappreciated work to keep things operating smoothly. Your spouse could have helped you when someone quit without notice. They could cover for you when you have an unusual number of employees out sick or just handle basic duties that you didn’t want to have to hire a secretary or assistant to manage.
The more your spouse has invested labor and established sweat equity in the company, the stronger their potential claim to an interest in its current value.
You promised to share ownership of or income from the business
Promises that you made to your spouse about how they might benefit from all the work and money you poured into the company could eventually affect what happens in a divorce.
If you promised your spouse that they would have a shared ownership interest in the business once it reached a certain size or that they could expect to continue receiving income from the company because of their work or other investment in the business, you may have an oral contract that could impact how the courts handle the property in your divorce.
Reviewing your financial records can often help you explore how much risk you have for sharing your business with your spouse in a divorce.