Business interests such as stocks, shares, and membership interests in a company (e.g. LLC or corporation) can bring capital and potential profits to an individual and couples alike. However, these interests can be very valuable and may be a subject of dispute in a divorce proceeding between a married couple. What happens to these assets when one of the individuals in the divorce acquired them before the marriage? What happens when the interests are acquired during the marriage? Do they get treated like other assets in a divorce proceeding? How do these interests get divided if it is determined that both individuals have a right to them? This can be a complicated area of divorce law but this article will cover the basics of what you need to know and how your interests can be protected in a divorce.
How are business interests classified in divorce proceedings?
Business interests are not treated differently from other types of property in a divorce. Typically, the assets of the parties in the divorce will be classified as either marital property or separate property. The assets that are deemed marital property will then be divided between the spouses. States can vary on how exactly the property is divided between the parties, however in Florida, the marital property is divided 50-50, which is referred to as equitable distribution. The classification between the two types of property is dependent on whether the individual came into the marriage with the interests or the interests were acquired during the marriage. In the former situation, the interests are separate property and the individual who had them before the marriage keeps them, and in the latter case the interests are marital property and the interests will be split. Further, the decision could also depend upon the source of the funds used to acquire the property.
For example, if a business interest was acquired before the marriage, it would most likely be deemed to be separate property. If the interest was owned by one spouse before the marriage and maintained the interest separate from their spouse, that interest would be separate property. This could change if during the course of the marriage, marital property was used to support the business interest, the spouse supported the business without compensation, or the spouse used business funds to support personal affairs that were separate and apart from the business.
How are the business interests split?
Florida divorce courts usually split the marital property 50/50 unless a judge determines that unequal distribution is justified. Some factors that a court will consider when dividing the interests are:
- The financial circumstances of each individual;
- Which individual will have custody over children;
- The debts and liabilities that each individual has;
- The circumstances associated with dividing the business interests. For example, if one of the
- individuals bear more responsibility and control managing the business interests, then the judge
- may give more of the interests to that individual.
There are other factors that relate to the actual value of the interests in dispute and how that value is determined. Please click here to see the link to our article which discusses how these separate interests are valued in a divorce proceeding.
Once the value is determined, the interests can be split through one spouse buying out the other, the business interests being sold and the proceeds divided, or both spouses maintaining their share of the interests and they agree to how the interest will be managed in the future.
How can you protect your business interests?
Now that you know what may be subject to being split, how can you preemptively protect those interests? First, you can agree to a prenuptial or postnuptial agreement that provides the business interests will stay with you in the event of divorce. One of these agreements can enable you to:
- Establish the value of your business interests at the time of marriage;
- Determine how the business interests will be valued;
- Specify what business interests each party in the divorce is entitled to;
- Provide what will happen with the appreciation or depreciation of the business interests through
- the duration of the marriage.
No one wants to think that their marriage could end in divorce, but in recent years prenuptial agreements have become more commonplace and should be an option that is seriously considered, for the benefit of both parties involved in the relationship. Another option is that you can place all your business interests into a trust or a separate business entity, such as a corporation or LLC. This strategy can help protect these interests from the equitable distribution process during the divorce. It is more effective if this trust or entity is created before the marriage but it still could be helpful if it is created after the marriage. One thing that is important to note is that it is essential that marital assets are not used for anything involving the trust or entity. Doing so will make it more likely to be classified as a marital asset.
A spousal consent form can provide some comforts as well, to ensure that both spouses agree to restrictions and the treatment of how shares will be handled at death, disability, and divorce. Finally, you can protect your business interests by distancing the opposite party from the business interests during the marriage. As was mentioned earlier, one of the factors courts take into account is the responsibility and control the individual had in the business interests. The less that the opposite party had to do with the business interests, the better.