About 39 percent of marriages in the United States will end in divorce.
The dissolution of a marriage doesn’t just mean you and your ex-spouse are at liberty to move on with their lives. If you have children and own marital property, you have to work out child custody and property division agreements. And if you own a business, things can get even more complicated.
So, what will happen to your business in the event of a divorce?
In this article, we’re fleshing out a guide to divorce and how it can affect your business.
Who Really Owns the Business?
When you’re single, every business you start is fully yours, as long as they’re sole proprietorships.
However, ownership status can change as soon as you get married. This largely depends on whether you live in a community property state or common law state.
In a community property state, all assets acquired during the course of a marriage are jointly and equally owned. If you started your business before getting married, your business belongs to you. But if you started the business after marriage, your spouse has a 50 percent ownership stake.
In a common law state, property solely belongs to the person who acquired it, as long as the property is only registered to them. But if a property’s ownership documentation has a couple’s names on it, then there’s 50-50 ownership, regardless of who purchased it.
As such, it’s possible that your business will remain yours in a common law state, even if you started it during the marriage.
The Cost of Divorce on a Business
Ultimately, what happens to your business will depend on the laws in your state and the steps you took to protect your business.
If you live in a community property state and you started the business after your marriage, getting divorced means both of you are entitled to 50 percent ownership. If you decide to sell the business, you will split the proceeds equally with your ex-spouse. And if you decide to keep the business operational, you’ll share managerial responsibility equally, unless you can agree otherwise.
In a common law state, there’s equitable distribution of property. Your ex-spouse will get a fair share of the business, especially if they argue that they have contributed (the contribution doesn’t have to be financial) to the business during your marriage.
Whichever way you slice the business, there’ll certainly be tax implications. Selling the business, for instance, may attract a capital gains tax. Paystubcreator.net has an informative article on divorce tax rules. Take a look!
How Can You Protect Your Business?
Marriage doesn’t have to be a stumbling block on your entrepreneurship efforts. There are steps you can take, such as creating pre-nuptial and post-nuptial agreements, to protect your business from unforeseen events like a divorce.
Use These Guide to Divorce and Business Ownership
Getting married and starting a business are important milestones in anyone’s life. You can have both without any issues for as long as you live. However, when divorce comes into the mix, your business becomes under threat.
With this guide to divorce, you now know how your business could suffer. You also know what you can do to protect it.
All the best and keep reading our blog for more handy tips.
