How Divorce Affects Business Owners

When you get a divorce as a business owner, you will find yourself in a difficult situation. As an equitable distribution state, Minnesota business owners may very well find themselves becoming business partners with their ex-spouse after a divorce, and there isn’t a divorced couple in the world that wants that. This is why it is so crucial for business owners going through a divorce to understand the position they are in so they can take steps to protect their business.

Are Businesses Considered Separate Property?

It is widely known that in Minnesota if you obtain property or other assets before a marriage, then during a divorce, these assets will be classified as separate property. This means that they will not be subject to the asset division process.

It works the same way for businesses. If a business owner started their business before marriage, then it makes that business their separate property. Unfortunately, being able to claim a business as separate property in a divorce is rather rare. The issue is that if a business increased in value during the marriage, as growing businesses often do, then the increase in value can be considered marital property.

This may not mean the business will be divided, but that your spouse needs to be compensated for the value increase. Furthermore, if your spouse contributed to the business in anyway, regardless of when it was started, then it will be considered marital property.

Protecting Your Business During Divorce

If you don’t want to be business owners with your ex-spouse or risk the rather rare occurrence of your business being sold and the profits split, then you do have some options available to you. To protect your business, consider employing the following:

• Supplement With Marital Property – If you don’t want your ex-spouse being involved in your business in any way, one way to satisfy the courts is to offer up an equal amount of marital property as a form of a “buyout,” so to speak. You want the business? Then consider giving up your share of the house or other marital property in an exchange.
• Obtain a Buy-Sell Agreement – This sort of document protects businesses in the event that the business is sold, a partner passes away, or the owner divorces. Think of these agreements as a sort of pre-nup for businesses where it dictates when an owner can sell their interests, who can buy them, and for what price. By consulting a solid tax lawyer to set this up, it will force a spouse who receives ownership to sell that ownership back to the company.
• Put It In a Trust – If your marriage is starting to go south, it may be worthwhile to consider placing your business in a trust. Similar to how the elderly use trusts to avoid probate, putting a business in a trust will remove it from marital property.
• Consider a Post-nup – If you are getting a divorce, it is far too late to get a pre-nup, but you can still consider a post-nup. It functions essentially the same, but courts will view it with much more scrutiny since your spouse is essentially signing away their rights. You may find that the courts do not uphold it, but it is better than doing nothing.

Need Help?

Are you a business owner and looking down the barrel of divorce in the Minneapolis area? You need to work quickly in order to protect the interests of the business that you worked so hard to create. If the divorce has started, contact us today to talk over your options with Beckman Steen & Lungstrom so that we can make sure that the worst possible option isn’t a reality.