If you are an entrepreneur or business owner, divorce poses additional challenges beyond changing interpersonal relationships. A legal separation inherently involves the division of assets and liabilities that you accumulated as marital property, which might include your business.
A misstep during the process could compromise the commercial and financial interests you have worked so hard to gain. However, an understanding of the process and your options can help you protect your company.
The effect of asset division on business ownership
In Minnesota, marital property encompasses any assets you acquired during the marriage. This means that even if you started a business before the union, it may still be subject to division if it increased in value during the marriage. The court considers various factors to determine whether a business is a marital or nonmarital asset.
However, Minnesota is one of the 41 states that follow an equitable distribution approach. As such, the court aims to divide marital property fairly but not necessarily equally. Each partner’s contribution to assets or a business affects the property division.
If the court considers a business as marital property, it may be subject to division or sale. Options include:
- Joint ownership
- Sale of the business
- A partnership or shareholder agreement
One potential alternative is for the court to award one spouse full ownership of the business. It then compensates the other party with different assets or a larger share of non-business assets. If you want to keep your business, explore avenues for sacrifices you can make.
Only a valid prenuptial or postnuptial agreement can alter the court’s authority to decide these matters. If divorce appears to be on the horizon, you may consider trying to come to an amicable postnuptial agreement to protect your business.
The importance of the value of the business
To facilitate the division of assets, you need to know the correct value of the business. This process might require the assistance of professionals such as business appraisers, accountants and financial consultants.
The court may appoint a neutral business appraiser or allow each party to hire their own appraisers. The appraisers will assess the value of the business and provide their respective opinions to the court. The court will then consider these opinions, along with other relevant factors, when making a decision.
Note that the valuation process can be time-consuming and may require significant cooperation from your spouse. The sooner you can work on work on this step, the smoother the process may go.
While divorce can significantly impact your business, you do not necessarily have to settle for losing a company. By understanding the legal process and exploring your options, you may still be able to find a satisfying resolution.