Is My Spouse Entitled to Half My Business During a Divorce?

In case divorce wasn’t already stressful enough, business owners have even more to worry about when they begin the divorce process. In many Alabama divorces, a business owned by one partner is considered marital property. As such, it may be subject to asset division during the divorce.

If you’re facing divorce and you’re worried about the future of your business, we’re here to help. Call Kirk Drennan Law Office at 205-803-3500 to schedule a consultation now.

The Business as Marital Property

To start, you have to look at how Alabama courts view property. In most cases, you’ll find that businesses started during the course of the marriage are considered marital property. Some people wonder if this is true even if they purchased the business on their own and built it without input from their partner. In these cases, yes, the business is still considered marital property.

The courts assume that marital assets were used to build the business and that both individuals made sacrifices for the good of the business. It is fairly difficult to get a business that started during the marriage declared as separate property.

The circumstances are a little murkier if your business started before the marriage began. If the business was not used to benefit both parties during the marriage, it will likely remain separate property and won’t be divided. If both partners lived off the proceeds of the business or worked on the advancement of the business, it may be considered marital property.

Negotiating a Buyout

If the business is in fact marital property, what’s your next step? You will usually have to negotiate a buyout with your ex-partner. This involves getting the business appraised as you need to know what the business is worth before you can buy out the other owner. A number of circumstances make this process significantly more difficult.

If you are not the only owner of the business and other people have a stake in it, you could be in for a fairly long legal process if you want to buy out your ex-partner. Additionally, if your partner does not want a buyout and wants to remain a partial owner, you may have some work to do.

Tax Considerations While Dividing a Business

During negotiations, it is important to keep tax implications at the back of your mind at all times. An agreement that appears fair and beneficial to both parties can suddenly go sour if it turns out one party will be heavily penalized on taxes the following year. This is one area where your CPA and attorney can help you figure out what you really need to get out of negotiations. Property transfers must be done in a way that does not lead to taxable gains or gift tax liability.

Trading Other Assets to Keep the Business

Buying out a partner or giving them half of your business is not always a viable solution. First, many people simply do not want to give up ownership or buy someone out for something they feel they built on their own. That’s understandable. Additionally, some people do not have the liquid funds available to buy out the other party.

Your attorney may suggest negotiating other assets to allow you to keep the business. This is common in high asset divorces. The spouse who did not start the business may not want the hassle of ownership or buyout, and the person who started the business does not want to lose

any control over their creation. If you have other assets that you’d be willing to use as bargaining chips, that could be the way to go.

For example, if your ex-partner is worried about the loss of business income for stability, you may be able to give them a rental property (if you own one together) in exchange for you retaining full ownership of the business. You may also agree to pay spousal support or allow them to keep other valuable assets in exchange for the business.

Kirk Drennan Law Office is Here to Help

There are a number of ways to handle property division issues in a divorce, but no matter what, a strong divorce attorney is key. At Kirk Drennan Law, we fight for our clients’ best interests at the negotiating table and in the courtroom. Set up your consultation now by calling us at 205- 803-3500 or contacting us online.