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Holding on to or splitting a business during a divorce

On Behalf of | Jan 14, 2020 | Divorce

To a dedicated entrepreneur, a business could be as precious as a child, and protecting his or her “baby” during a divorce may reflect a vital issue. When a company started before an individual married, however, an Indiana judge generally considers it as separate property. His or her soon-to-be ex-spouse may not have a legal right to it.

When a business formed after a couple legally married, the court typically views it as marital property, which belongs to both spouses. According to the U.S. Census Bureau’s data, approximately 3.7 million businesses account for a married couple’s jointly owned assets, as reported by CBS News.

Ownership rights and division of marital property

Under Indiana’s divorce laws, both spouses have a legal right in claiming ownership of a jointly owned business and its income. While many individuals mistakenly believe the business splits up equally in half, a family court judge may divide it by what he or she considers as fair.

Both spouses may have owned and operated a business by sharing equal responsibility for generating its income. When one individual managed the business and the other acted as an employee, spouses may need to determine whether the working relationship will continue after a divorce. If a spouse-employee must quit his or her job, a court may require a severance payment.

Splitting a business

As reported by Forbes magazine, a couple may decide to sell their business and split the net proceeds between them. If the two spouses contributed to a business’s growth equally and the skills of both individuals were necessary for its income generation, the court may view it as though it were a partnership. One spouse may need to buy out the other or accept changes to the business structure to continue receiving a fair share of its income.

Before filing for a divorce, the contents of a prenuptial agreement may have ensured that a spouse does not have an ownership right to the business. Without such an agreement, however, the business and assets may require a valuation to determine a fair settlement.