How is a business divided during divorce?

On Behalf of | Mar 15, 2023 | Firm News

Dividing property can be a lengthy process during divorce proceedings. You and your ex might encounter assets that are difficult to classify, such as businesses.

Some assets might be simple to classify. If you property was received them during the marriage, it  is initially  presumed to be marital property. If you received it before marriage, it is separate property but you should understand that separate property can transmute in part or in whole to marital property. Inheritance and gifts received by one spouse during your marriage from people aside from your the other spouse are initially classified as separate property.  Again though, depending on how that separate property is handled, it may remain separate or be transmuted.

Depending on the circumstances, the business’ income and value could fall into either or both classifications. Here are some examples:

  • It is separate property if one party started or inherited it before the marriage, and that spouse’s efforts during the marriage did not attribute to the business income and value. If the other party worked on the business during the marriage, the employment income that was earned during this period will become marital property.
  • If one party started the business before marriage, but the other party’s efforts substantially increased its value, the increase is marital property.

Classification could become complex or straightforward based on how the parties gained the business and their contributions to its growth. The court would evaluate each party’s labor and ownership of various parts of the business. Then, based on the analysis, the property would be classified as marital property, separate property, or hybrid property (that being part marital and part separate).

Other rules for categorizing assets

Aside from businesses, other assets could lead to complicated classification. A marital property – such as a joint or family savings account – could receive deposits from an inheritance or gift, which may either remain separate but could possibly transmute to being marital.

In this case, the court could classify these assets under marital unless they can trace their origin using bank documents and  other sources to show which part of the account is separate. Additionally, homes bought using separate assets and joint mortgages could lead to a more thorough review before determining its appropriate classification.

Once the court classifies the assets, the marital property will be subject to equitable distribution.




FindLaw Network