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Is your small business up for grabs in your divorce? - Part I

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Everyone says that getting a divorce is an emotionally charged process, filled with contentious moments and bitter disagreements. But when a large amount of assets are on the line, this statement becomes all the more true, making divorce proceedings even more challenging for high net-worth individuals.

Consider for a moment that you are a high-asset individual due mostly in part to your successfully run small business. You are currently in the middle of divorce proceedings and have reached the part of the process where you must divide your marital assets. Here's where things get difficult, though. Your spouse argues that your small business should be considered marital property while you consider it to be your own personal property because you started the company.

Who is right? Your spouse or you? Are you required to share a part of your business you have worked so hard to make successful?

Issues like this are not uncommon for business owners during divorce proceedings. To answer the questions we pose above, many things need to be taken into consideration, including:

  1. Whether the business was started before marriage or after marriage;
  2. Whether both spouses took part in the growth of the business or just one spouse; and,
  3. Whether any marital funds were used to maintain the business.

While other things will also be taken into consideration, answers to these three major questions often determine whether a business is considered separate or marital property. If the other spouse can make a claim to the business, then it may need to be valued and divided as marital property.

While we have answered today's question, we realize we have opened the subject up to another question: how is a business equitably divided during property division? In next week's post, we will take a look at this question and hopefully answer it for our readers.

Source: FindLaw, "Is Your Small Business Separate or Community Property?" Le Trinh, Esq., March 19, 2015

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