Small Business and Divorce

If you are going through (or anticipating) a divorce, what happens to a business owned by one or the other of you? What about the money in the business bank accounts? The furniture and fixtures? The ownership interests?

The answers to these questions and more are critical so that you can plan and we can creatively solve potential problems in the divorce. While there is enough information to write a book, here are some of the first questions:

What Type of Business is it? LLC, Chapter C, Sub-Chapter S, D/B/A, General Partnership, Other

1. Was it formed before or during the marriage?
2. Who owns the shares/member interests, and in what percentages?
3. Has any ownership interest been given or assigned to anyone (including the spouse), and did that occur before or during the marriage?
4. Would the business still be viable if the spouse operating it ended his / her involvement?
5. How much money would be left over if the business was shut down, assets liquidated, and all debts paid off?
6. Are there personal guarantees of any business debts or contracts?

The answers to these initial questions will determine whether the business is the separate property of one or both spouses or community property. This is important because the court can only divide/award community property and can only confirm ownership of separate property.

It is also essential to know that if the business is a legal entity, neither spouse owns anything “in” the business: not the accounts, receivables, equipment, furniture, etc. Rather, it is the business that owns these items. Accordingly, the court cannot award any of the business’s money or property to either spouse. However, if the business is community property, the court can award all or part of the ownership of the business to either / both spouses.

The liquidation value and value as a going concern (irrespective of either spouse’s ongoing involvement) is essential, as the business may not be worth anything to one spouse (or anyone else). Still, it may provide the livelihood of the spouse operating the business.

When we have a divorce with a business, we will explore these and more questions to be able to strategize for your best outcome.