By yourself or with partners, you finally did it. You formed a business and poured your heart and soul into it. Now, it’s successful beyond your wildest dreams. Then the hammer falls – your spouse wants a divorce. Will you know how to protect your business from divorce? Some actions can be pre-emptive, while others may be done as the divorce proceeds.
What can happen to a business during divorce?
If you lived in a community property state, the divorce judge may consider your business to be community property. You and your ex-spouse may split your business 50-50.
However, Virginia is not a community property state. Instead, the courts use something called equitable distribution. Instead of an automatic and even split of community property, Virginia law requires the following:
“that property and debts be classified as marital, separate, or part marital and part separate; that marital property and debts be valued; and that such marital property or debts be equitably divided based on the statutory factors in Virginia Code Section 20-107.3”
But is your business marital, separate, or marital/separate property?
It’s complicated. Really.
If the business was formed or acquired during the marriage, it may be considered marital property or jointly owned. However, if the business or money used to buy the business came from an inheritance or gift from someone other than a spouse, it may be considered separate property.
Property that is part marital and part separate complicates matters. If a spouse inherits a business and the couple both work there, the business may be separate property while the income may be marital property. If separate property, like a business, increases in value during a marriage, the increase may be marital property.
What can be done to protect a business from divorce?
Whether your marriage is rock solid or not, you can take steps to protect your business from future divorce:
- Keep personal finances separate from business finances.
- Limit your spouse’s business-related activities.
- Sign a prenuptial or a postnuptial agreement.
- Considering transferring business interests to a trust.
- Put a good buy-sell agreement into place, including insurance to pay for a future buy out.
Protect the Business You Built.
The lawyers at Dillon Law Group, PLC, provide individualized advice to answer their clients’ questions and concerns. Give us a call at 757-962-4796 or use our convenient Contact Form. We assist clients in the Virginia Beach and Newport News areas.