Divorce can make life complicated quickly, especially when it comes to your finances. The headache can quickly multiply for business owners who may be worried about what will happen to their business during a divorce. Whether or not your spouse will end up with a part of your business or not can depend on various factors. 

You should be aware of these factors and what they may mean for your particular divorce scenario. Understanding this will help you with family financial planning in the aftermath of the divorce. 

Forced business partnership with ex-spouse 

One scenario that could arise in a divorce is that you will be forced to be in a business partnership with your ex-spouse. In community property states you may end up having to give half of the ownership in your business to your ex-spouse. You may have to give a similar amount of the business to your former spouse in an equitable distribution state as well. 

Liquidation of your business 

Another potential outcome of a divorce is a forced liquidation of your business. This would mean that the court orders you to sell your business and split the proceeds with your ex-spouse. However, courts are unlikely to go with this option especially if the business is paying for family living expenses. 

Give other assets in place of business 

A third option, which is more likely than total liquidation, is giving other assets to your ex-spouse instead of your business. This can be the result after a judge decides your ex-spouse is owed a certain portion of your business. In this way you will be able to keep your business intact and away from your ex-spouse’s control. 

Marital or separate property 

Whether or not your business or a part of your business is considered marital or separate property plays a key role in determining how the courts will deal with your business during a divorce. This means if you started the business while married your ex-spouse will automatically have a claim to a part of the business. 

On the other hand, if you started the business before marriage then it may not be much of a problem, since the business will be considered separate property. However, if your business appreciated in value during the marriage, it could mean that the increase in value could be considered marital property. This would mean that your ex-spouse could end up with a portion of that amount of increased value of the business. 

Family financial planning 

Aside from the legal issues, obviously, a divorce will have a significant impact on what role your business will play in your family financial planning strategy. It is important to look at the financial situation from a bigger picture perspective. After the divorce, what assets you need to consider when planning for generational wealth will likely be significantly different than before. You may want to consider consulting with a professional wealth management advisor who can help you update your financial planning to reflect your post-divorce circumstances. 

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.  Any opinions are those of the author and not necessarily those of Raymond James.  Expressions of opinion are as of this date and are subject to change without notice.  There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Raymond James and its advisors do not offer tax or legal advice.  You should discuss any tax or legal matters with the appropriate professional.