EP 22: Save Your Business in Divorce

Welcome to the twenty-second episode of Divorce and Your Money Podcast. Your host, Shawn Leamon, MBA and a Certified Divorce Financial Analyst, discusses what happens to your business during divorce.

This subject is complex, and you first need to check to see whether the business is marital property or separate property.  If the business is separate property, then that particular spouse gets to keep it, but if it is considered marital property, then it is something you are entitled to or need to protect.

Sometimes part of the business could be considered marital property, while part of it is considered separate. This essentially depends on when the business was started, how it was financed and funded, and how its value has changed overtime.

Complications include cases such as when a spouse receives some ownership in the business during marriage. That property will be subject to division. A spouse could have purchased part of their ownership during marriage to join the other spouse, or one spouse could have received part of a business as a gift during marriage. You’ll have to consult your legal and financial team for more information.

For marital property in a divorce, many business considerations are involved, such as how the business is structured, if it is a LLC or a C Corporation, or if it is a partnership. Business structure can have many important legal implications. You also need to know how much income the business generates and how the business was financed. The most important question, however, is how much money someone will receive.

You need to determine what the value of business has been during marriage, how it has changed, and what it was before your marriage. It can drastically impact the settlement you receive or pay.

Business valuation is also a highly complex subject, but you can consult certain people who will be able to help you in this process. One is a CPA, and the other is a Certified Business Appraiser. They will use variety of metrics to determine the value of the business and also unearth any hidden compensations.

If you have a business, you have three options:

  • One spouse keeps the business.
  • Both spouses keep the business.
  • You sell the business.

Key Learning Points:

  • Determine whether the business is marital property or separate property.
  • The status of the business depends on when it was started, how it was funded, and how its value has changed over time.
  • The structure of the business can have serious legal implications.
  • Hire a CPA and a Certified Business Appraiser to determine the true value of the business and a Forensic Accountant to find any hidden compensation or other assets in the business.