How Is A Business Owned By Both Spouses Divided In Maryland Divorce
Understanding what belongs to you and what does not can increase the stress of a divorce. When you own a business, you may be especially concerned that the entity is protected and preserved for your and your children’s benefit.
As your Maryland property division attorney, Shah & Kishore will safeguard your interests and determine the best path forward for your business and finances. Our attorneys have a deep financial background and are uniquely able to ensure that your assets are properly valued and that any asset disputes are fairly resolved.
Is The Business Marital Property?
The critical question about an existing business in a Maryland divorce is this: Is the business marital or non-marital property? Maryland is an equitable property division state, which means marital property must be equitably divided in a divorce. Equitable does not always mean 50/50, and the judge will consider many factors when deciding how to split marital property. The judge will distribute marital property in a way that is fair under all circumstances that are considered. The property division law authorizes the court to:
- Decide if the property is marital or non-marital
- Assess the value of the property
- Use fairness principles when determining how to divide marital property
Marital property is defined as all assets that were acquired by one or both spouses during the marriage. It does not matter who purchased it or whose name is on the title. However, marital property does not include:
- Property that you acquired through an inheritance or gift
- Property that a spouse acquired before the marriage
- Property that was excluded by a prenuptial or postnuptial agreement
If the property is in any of those three areas, it is separate property and not subject to equitable property division. A business acquired or created during the marriage will usually be considered marital property, but if the starting capital was separate property, there could be an exception. Also, if the business is separate property and increased in value during the marriage, the court could say the business appreciation is marital property.
Furthermore, the court could determine there is a marital property aspect to the business. For instance, if you owned a small software company before the marriage and your spouse worked in the business during the marriage, there could be a marital property component. Another example is if marital assets were contributed to expand the business during the marriage.
The spouse who claims the business is wholly or partially separate property must prove it. So, you need to keep transparent accounting and financial records to prove that claim. This is especially important if commingled funds were added to the business.
There are many factors to consider in determining if the business is marital or non-marital property. Some of these are:
- How long has the business existed, and how long have you shared control with other parties?
- Who came up with the idea for the business?
- What is the legal structure of the business and the potential for growth?
- Do business profits go into the marital estate?
- Which spouse has contributed more time and money into the business?
- Does either spouse rely on the business for their income?
- Did one spouse primarily work in the business as their main job?
How The Business Is Valued
As with any property divided in a Maryland divorce, the business must be appropriately valued. Just as with real estate, a business appraiser or forensic accountant will be needed to review the business books and determine their value. Tangible and intangible assets, liabilities, and its reputation in the community will be considered, among other factors.
Business valuation can be complex, but Shah & Kishore attorneys have a solid financial background and are skilled in evaluating business value. If the divorce is collaborative, the spouses could agree to hire a business appraiser to contain costs. But if a divorce is litigated, both parties will typically hire experts to perform a business valuation.
Business Ownership And Operation In A Divorce
In many cases, the spouse who essentially ran the business will be awarded it in the divorce. Then, that party will buy out the other spouse, or the business value will be offset with another asset. The buyout payment could be ordered as a lump sum or paid over a fixed term. If there are not enough marital assets to offset the business’s value, it may need to be sold.
In other cases, a couple ran a business together when married and want to continue running it after the divorce. If they are on amicable terms, they can continue to run the business together. However, this usually only happens when the parties agree on a collaborative divorce.
However, the matter gets complex when both spouses and other parties own the business. The court may need to look at stock shares, ownership percentages, agreements between the parties, working and capital contributions, and more.
Consider A Prenuptial Or Postnuptial Agreement
If you are getting divorced, it is too late to consider a prenuptial or postnuptial agreement, but it is worth mentioning here. If you are getting married and owning a business, it is wise to protect the asset with a pre or postnuptial agreement.
The prenup can state that the business is yours, but you could offer something else in place of it in a divorce, such as cash or the marital home. Note that a prenuptial or postnuptial agreement has to be signed by both spouses and cannot be done with force or coercion. If you are still married and do not have a prenuptial or postnuptial agreement, Shah & Kishore can assist you with drafting a contract that protects your business interests.
Contact Our Maryland Property Division Attorney Today
If you are getting a divorce and own a business, you may be concerned about how that entity will be divided or handled during the process. Contact our Maryland property division attorneys at Shah & Kishore. We have the legal, business, and financial background to help with your case, so call (301) 315-0001 today for a consultation.