Building a business takes years of grit, sacrifice, and financial investment. It is often more than just an asset, it is your livelihood, your passion, and your future. However, if you are facing the end of a marriage, that business could be caught in the crosshairs.
When going through a marriage dissolution or divorce, one of the most stressful questions entrepreneurs ask is: What will happen to my company?
Understanding how courts view business ownership in divorce is the first step to securing what you have built. We regularly guide Central Ohio business owners through high-asset property division. Here is what you need to know to protect a business in divorce.
Is Your Business Considered “Marital Property”?
In Ohio, property division follows the rule of equitable distribution. This means the court aims to divide all marital assets fairly, though not always an exact 50/50 split.
The first step the court takes is determining if your business interest is marital property, separate property, or a mix of both.
- Marital Property: If you started or purchased the business during the marriage, it is generally considered a marital asset. Your spouse may be entitled to a portion of its value, even if they never stepped foot in the office or signed a single document.
- Separate Property: If you owned the business before you got married, the core entity may remain yours. However, any increase in the business’s value that occurred during the marriage can be deemed a marital asset, especially if marital funds or your spouse’s efforts contributed to that growth.
4 Strategic Steps to Protect Your Business
If you are navigating a divorce or anticipating one, there are active measures you can take to shield your operational stability and assets.
1. Request a Professional Business Valuation
You cannot protect what you cannot accurately measure. Relying on basic bookkeeping or tax returns will not give the court a true picture of your company’s worth. Work with an attorney who can bring in specialized forensic accountants to perform a comprehensive business valuation. This calculates true fair market value while accounting for intangible assets like goodwill.
2. Leverage Pre-Marital or Post-Marital Agreements
If you had the foresight to sign a prenuptial agreement before saying “I do,” this document is your strongest line of defense. A well-crafted prenup can explicitly state that the business, its appreciation, and its future revenue remain solely your separate property. If you are already married but the business is expanding, a postnuptial agreement can achieve similar protections.
3. Rely on Corporate Governing Documents
Your company’s internal legal structures can serve as an external shield. Operating agreements for LLCs or buy-sell agreements for corporations often include clauses that restrict the transfer of ownership shares.
For example, a “Right of First Refusal” clause can dictate that if a shareholder divorces, the other business partners have the right to buy out those shares before they can be transferred to an ex-spouse.
4. Consider an Asset Offset or Buyout
Most business owners do not want their ex-spouse becoming their new permanent business partner. To avoid this, you can structure a buyout. This often involves:
- Giving up other major marital assets (like the marital home, investment accounts, or real estate) to match the value of your spouse’s share of the business.
- Structuring a property settlement note to pay your ex-spouse their share over a set period of time out of future business revenues.
Separate Business Accounts from Personal Finances
One of the easiest ways to compromise your business ownership in divorce is “commingling”, which is mixing personal and business funds. If you routinely used the business account to pay for family vacations, home renovations, or personal bills, the court may view the business simply as a shared marital checking account. Always maintain strict financial boundaries between your personal life and your business entities.
Partner with an Experienced Legal Advocate
Navigating business finance, corporate structures, and asset valuations during an emotional family transition requires sharp legal strategy. You need a legal team that understands both domestic relations law and complex corporate accounting.
At KRK Family Law, we combine an advanced understanding of business finance with over two decades of dedicated family law experience. We work to protect your professional achievements so you can move forward with confidence.
Contact us today to schedule your confidential consultation.