Your Hometown Firm For Personal Legal Service

Exterior of the Office Building of Maitland & English Law Firm, PLLC

Dividing a business in divorce

In many ways, the legal issues are the same in every divorce in North Carolina: If they have young children, the spouses must resolve questions of child custody and child support; and whether they have children or not, they must divide their marital property according to state law. This is rarely easy, but it can be much more complicated depending on what types of property are involved.

Dividing business interests in divorce can be particularly complicated. In this blog post, we will discuss the basics of the process.

Equitable distribution of marital property

First, we must note that marital property includes nearly all types of assets or debts acquired by either spouse during the marriage. Property owned by one party before the marriage is generally considered to be separate property, and therefore not subject to property division. However, if separate property commingled with marital property during the marriage, a court may consider it to be wholly or partly marital property in divorce.

Next, remember that North Carolina requires equitable distribution of marital assets and debts. “Equitable” doesn’t necessarily mean an equal division of property. Rather, it means the division must meet guidelines of fairness under state law. Depending on the circumstances, an equitable distribution might look like a roughly 50-50 split, or it might look more like 60-40 or 75-25.

Business assets: marital, separate or commingled?

If you are getting a divorce and you own a business, the first question to ask is whether the business must be considered as marital property or separate property. If you owned the business before your marriage, it could be separate property.

However, it is quite common for business assets to become commingled with marital property. For instance, if your spouse worked for the business or contributed funds to it during the marriage, a court might find that your spouse acquired a property interest in the business. This may mean your spouse has a 50% stake in the business, or some smaller percentage.

Three more options

If your spouse has a stake in your business, you have three main options in divorce.

  1. You can continue running the business as before, with your ex-spouse as your business partner.
  2. You can sell the business and divide the proceeds between you according the terms of your divorce agreement
  3. You can buy out your spouse’s share in the business.

Each option has its advantages and disadvantages. As you might imagine, Option 3 is the most common choice.

Before you can pay for a share of a business, you have to know how much the business is worth. For this, you will need professional appraisers to place a value on your business.

One downside of Option 3 is that the spouse who seeks to keep the business must come up with a lot of money to buy out the other’s share. This can be impossible if they don’t have sufficient liquid assets. It’s common to get around this problem by establishing a payment plan that completes the sale over a longer period.

Complex issues require experienced help

Dividing assets in divorce is never easy, but complex assets make the process much more complicated. Business assets can be very complex, and so dividing them can be particularly tricky. Attorneys with experience help their clients through the process.