Divorce can introduce many uncertainties, especially regarding the division of assets accumulated during the marriage. One major concern you might have as an entrepreneur is whether you will lose your premarital business in a divorce.
If you owned a business before marriage, it’s natural to wonder how a divorce might affect your ownership. By exploring how premarital businesses are treated in divorce, you can discover the factors that influence whether you should be concerned about losing your business.
Marital vs. separate property
In divorce, the division of assets often hinges on whether an asset is classified as marital or separate property. Typically, your premarital business should be separate property because you created it before the marriage.
However, the distinction between separate and marital property isn’t always black and white. Over time, your business can become “commingled” with marital property, especially if your spouse contributes to its growth or if marital funds are used to support it. When this happens, courts may consider the business, or at least part of its value, as marital property subject to division.
Factors that affect business division in divorce
Suppose your spouse made significant contributions to the business; this could lead to the business being viewed as marital property. Your spouse might have contributed:
- Financially
- Through labor
- By helping with day-to-day operations
Even if you launched the business before the marriage, your spouse’s contributions could entitle them to a share of the business’s appreciation during the marriage.
Additionally, suppose you mixed business and personal funds during the marriage, such as using joint marital assets to finance business operations or making business purchases with a joint bank account. In that case, arguing that the business is separate property may be harder.
If you built a business before marriage, it could remain entirely yours after a divorce. However, if your spouse contributed to its growth, it’s important to ensure that its division during divorce is fair. Having experienced legal guidance will help.