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How to protect your business during divorce

On Behalf of | Jan 3, 2024 | Divorce |

If you are an Ohio business owner, one of your biggest worries when going through a divorce may be what happens to your business. You have probably worked hard to get where you are in the business world and do not want a divorce to jeopardize your success.

Ohio is an equitable division state when it comes to property division in a divorce. This means that marital property is divided equitably, or fairly. This does not necessarily mean equally.

Marital and separate property

What happens to your business in a divorce depends on if your business is considered marital or separate property. Generally, marital property is property you acquired during your marriage and separate property is property you acquired before your marriage.

A business that you formed before your marriage could be separate property. However, it could become marital property in certain situations.

Some common scenarios that convert separate property such as a business into marital property include business income and assets mixing with other marital assets or business income spent on your marriage.

Even if your spouse is not an owner of the business, they may have been involved in some parts of the business operations at times or contributed to your business’ growth and profitability. This could also be enough to convert your business into a marital asset.

Pre-nuptial and post-nuptial agreements

A pre-nuptial or post-nuptial agreement is usually the best way to protect your business in a divorce. If no one has filed for divorce yet and you do not have a pre-nuptial agreement, you could negotiate and draft a post-nuptial agreement that details what happens to your business in a divorce.

You most likely want to keep your business. You and your spouse could agree that the business remains your separate property or that they receive a reasonable payment in exchange for you keeping your business. These terms are then included in your post-nuptial agreement.

If neither of these agreements are not an option, there are other ways to protect your business. Limit your spouse’s involvement in your business and keep your business and marital money separate.

Comingling marital and business funds is one of the most common ways that a business becomes marital property. Keep detailed records of your business and personal accounts so you can account for where all your money goes and prove that no business funds have mixed with marital funds if it becomes necessary.

Valuing your business

Whether your business is determined to be separate or marital property, you will likely need to have a business valuation done. Having an accurate value of its worth helps you decide on a fair distribution of assets.

You should typically use an expert to value the business rather than do it yourself. Once a value is established, there are various ways a business can be divided if it is marital property.

When your divorce gets underway, consider divorce mediation as an option to negotiate a settlement agreement.

A marital settlement agreement addresses all marital assets. Prepare to potentially give up some other marital assets in exchange for keeping your business. Remember that the overall goal is a fair asset division.