Divorce is never easy, even if it is the right decision. When one or both spouses own a business, or interest in a business, there are typically additional considerations during the divorce process. How business ownership, in part or whole, fares in a divorce can depend on whether you are represented by a competent and experienced divorce law attorney. Here is how a divorce in Minnesota can affect ownership of a small business or partnership.
Marital Property Distribution
In Minnesota, “marital property” is defined as property that was acquired by either spouse during the marriage. Generally, some exceptions include:
- Property owned before the marriage
- Property received as a gift
- Inherited property
Minnesota mandates the “equitable division” of marital property. There are many factors that affect the equitable division of marital property. Some of the considerations include:
- Spousal income, education, prospects for employment, and their marketable skills
- What each spouse contributed to acquiring marital property
- Length of the marriage
- Any contributions from either party as a homemaker
What That Means for a Small Business
A business that is created during the course of a marriage may be considered marital property. The contributions of each spouse to that business may factor into any division of assets. A contribution to a business can also be made by a homemaker who supports the spouse running the business.
A business that was created during the marriage could be non-marital if a party contributed only non-marital assets to the business or if the business was received as an inheritance. If one party owned a business prior to marriage, the business could also be considered non-marital property. The determination can be a complex issue that heavily depends on individual facts. Contact a skilled divorce attorney for advice on the topic.
Small Business as Marital Property
If the business is considered marital property, the value of the business may be part of a final property settlement and division of assets. If spouses have a business partnership, the ownership percentages can factor into a share of the value of the business. Frequently parties agree on the division of assets, including a business. If the pirates cannot come to an agreement, the Court will make a determination. For this reason, having an experienced attorney is important.
Small Business as Non-Marital Property
A non-marital property business may be marital property if the following has taken place:
- An increase in the business’ value occurred during the marriage.
- A spouse aided in the running of the business, including providing support via a steady income.
Possible Solutions to Asset Division Issues
In just about every divorce before the court, the goal is to achieve a split of assets that is acceptable, if not preferable, to both parties. The goal of the split is fairness to both parties, regardless of what led to a divorce.
With ownership of small businesses, the emphasis on fairness remains, and the part of the business considered a marital asset receives a value which is used in any discussion of asset division. That opens a few possibilities to help achieve an equitable solution for all parties.
#1. Buying Out the Spouse
A common solution is for one to buy out the other spouse’s interest.
#2. Offsetting the Small Business Value
Another possibility is to give the business to one spouse and assign different assets to the other spouse which are equal to the value of their half of the business.
#3. Long-Term Buyout
A long-term buyout is when one spouse pays off the other spouse for their portion of ownership of the business over a longer period of time. A risk with this type of lengthy pay-off arrangement is the possibility of ending up back in Court if something goes wrong.
In some cases, spouses may feel the marriage is over but that they could still work together as partners in the business or with one spouse as an employee of the business. In either case, both spouses should contact an attorney to ensure they are being protected in this type of arrangement.
#5. Selling the Small Business
Although it is often preferable to come to an agreement to avoid selling the business, if neither spouse can agree on terms for splitting the business, then spouses may sell the business and split the proceeds from the sale in an equitable manner.
Dividing marital property during a divorce is never easy, and one incredibly challenging area is when a small business is involved. Working with a competent attorney will ensure the business is valued appropriately and that each party receives an equitable distribution.
Contact M. Sue Wilson Law Offices today to learn more about business ownership during divorce, and how one of our divorce attorneys can help.