Is my Spouse Entitled to Half of My Business During Our Divorce?
Getting divorced is always a stressful time for everyone involved, but when there are unique assets at stake, things can become even more complicated. One such instance is when one of the spouses owns a business or has an ownership stake in a business that the other spouse is not a part of. The one who has ownership and involvement in the business often wonders if their spouse is entitled to half of it (or half of their portion of it) when the marriage dissolves.
Unfortunately, there is no simple answer to this question, and it depends largely on the specific factors and circumstances in your case. It is understandable that you would want to keep a business that you built and put your heart into, but there is a chance that your spouse could end up with a portion of it.
To better answer the question of whether your spouse can take half of your business and you get divorced, there are some other issues that need to be clarified:
Is the Business Marital or Nonmarital Property?
The first thing that must be determined is whether or not the business you have ownership in is considered a marital asset. Florida is an equitable distribution state, which means that all marital property is to be divided “fairly and equitably” in the event of a divorce. So, if your business is a marital asset, then it will be subject to property division. If it is a nonmarital asset, then you would be allowed to keep 100% of your ownership.
In general, nonmarital property is any real or personal property that is:
- Acquired before the marriage began.
- Acquired as a gift or inheritance from a third party to one spouse and not the other.
- Acquired in exchange for nonmarital property (e.g., you purchased the business with cash that was acquired before your marriage).
- Excluded from the marital estate per the terms and conditions of a valid prenuptial or postnuptial agreement.
Determining whether a business is a marital asset can become murky in some situations. For example, maybe you started the business prior to the marriage, but you and your spouse both worked on building it during the marriage. In a case like this, a court might find that your spouse’s contributions to its growth and success entitle them to receive a portion of it.
Another common scenario is when business assets become comingled with other family assets to the point where it is difficult to distinguish between the two. For example, maybe you decided to have your business purchase your vehicles and a vacation home for tax purposes, or maybe you have become accustomed to using business funds to pay for personal expenses. This is another instance in which it will be difficult to argue that the business is not part of the marital estate.
Are There any Partnership Agreements that Address Outside Ownership?
What happens if you have other outside owners and there is a partnership agreement that forbids anyone (including spouses) from owning any interest in the company? Even though your spouse may not be allowed to own a portion of the business, they would still be entitled to the equivalent of half of your share if your interest in the business is a marital asset.
There are a couple of ways that an issue like this can be resolved. The ideal solution is to give your spouse other cash and assets in exchange for half (or nearly half) of your ownership in the business. Remember, this is “fair and equitable” distribution of assets, so it does not necessarily have to be 50/50.
For example, if your share of the business is worth $500,000 and the equity in your marital home is worth $475,000, it might be considered a fair trade to let your spouse keep the marital home and you keep your business. Of course, there would be other considerations, such as the income the business produces and whether or not alimony/spousal support would be appropriate. All of this is part of the negotiation.
If there are no other assets available to compensate your spouse for their share of your business, then you might have to look at other less desirable options. These would include selling your share to other partners, selling the entire business to an outside party, or selling off the assets in the business and shutting it down.
Work with an Experienced Pensacola, FL Family Law Attorney
If you are a business owner and you are facing a divorce in Florida, Whibbs, Stone, & Barnett is ready to go to work for you. Call our office today at 1-888-219-4561 or message us online to schedule a personalized consultation with one of our attorneys.