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a worried business owner who is divorcing, The Law Office of Patrick Crawford handles all kinds of complex divorce issues.

Owning a Business is an Important Aspect During Divorce Process

patrickcrawford | July 15, 2022
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Maybe you were already the owner of a proud business before you got married, or maybe you founded your company after tying the knot, but the bottom line is now that you are preparing for a divorce, your business could be at stake. Anybody who is dealing with these kinds of issues will want to be certain they are working with an experienced divorce lawyer in Annapolis.

 

If you did not plan ahead with a prenuptial agreement before marrying, then there is indeed a chance that your business could be at risk of now having to be split with your soon-to-be former spouse. All of that said, there can be a number of complicating factors in determining exactly who will get what when a business must be split between two spouses.

How Divorce in Maryland Affects Businesses

If you are preparing to marry, then you should take active steps to protect your business. If your spouse opposes a prenuptial agreement, you can still craft a buy-sell agreement for the business.

 

With an LLC, corporation, or partnership, you will be able to create a buy-sale, operating, partnership, or shareholder agreement that contains a provision stating what will happen to the business in the event of a divorce. While this can provide some security to the partners in a business, it will have no effect on the division of a divorcing partner’s interest.

 

When you are already married, then you might consider trying to negotiate a postnuptial agreement instead. When spouses are not seeing eye to eye, however, a postnuptial agreement is likely to only cause further disagreements.

 

When you have concerns about what is going to happen with your business, you should begin by accumulating various forms of evidence demonstrating that you were the one who put the time and money into the business while the other spouse did not. This will mean collecting documents or emails that show you were the one who was doing the work and adding value to the business.

 

It is entirely possible that a couple that co-owned a business could still continue to work with one another even after their marriage ends. When such an agreement does not seem possible, then you will probably have to prepare for a plan in which you transfer assets to your spouse.

 

Maryland state law requires all marital property to be subject to allocation during a divorce, and marital property encompasses all property that was acquired during a marriage. Such property will be split in a manner that the court deems fair, which does not necessarily mean 50/50.

 

A business that was acquired during a marriage will likely be considered marital property and thus subject to division during a divorce. The business, in turn, needs to be given a valuation to determine how any interest in the business will be split.

 

You will have to hire a professional appraiser to evaluate the total assets and viability of your business and tangibly demonstrate the value of the business. A complete valuation considers both the physical and abstract assets of a business, including its reputation and any partnerships you established with other businesses.

 

Key questions relating to splitting a business will include:

 

  1. How long has your business been open?
  2. How long did you share control of the business?
  3. Who came up with the idea for the business?
  4. What are the current business structure and its growth potential?
  5. Do the profits from the business go into your marital estate?
  6. Did you contribute more to the business than your spouse?
  7. Is your spouse relying on the business for income?

 

While your soon-to-be ex-spouse will try to claim a portion of your interest in your business, there are certain exceptions to the general rule. The scope of a spouse’s interest will depend greatly on many factors that will include restrictions on your interest that may be imposed by documents governing the business, non-marital or premarital claims you might have to your business interest, and the value attached to your interest in the business or in the business itself.

 

When two spouses form a business partnership, Maryland is an equitable distribution state, and you may have to give your spouse a portion of the business instead of half the business. Liquidation of the business could be another possibility in which you and your ex-spouse split proceeds.

 

When a business sees an increase in value during the marriage, then the increase in value can itself be considered marital property. When a spouse contributes in any way to a business, the business is much more likely to become marital property subject to division.

 

When you inherited a business or used your own separate property to invest in or purchase the business, then you would be able to claim the business is separate property and not subject to division in divorce proceedings. You are going to need many financial records to succeed with this strategy.

 

You should know that Maryland courts do not customarily cut a business in half to create a fair split. Instead, the value of the business will be taken into consideration while marital property is being split, and one spouse may get the business while the other gets some other piece of property that has a comparable value, usually a family home.

 

A Maryland court will use the fair market value to consider how a business should be split. A forensic accountant can be beneficial in determining a proper valuation, and the process will often rely on determining what a willing buyer might pay for the interest in the business.

 

Without a prenuptial or postnuptial agreement, you are still able to take steps to ensure a fair division of assets. You can establish yourself as the sole owner of your business, and then ensure that organizing documents for the business clearly specify that the business will not be transferred in the event of a divorce, although a cash award could have to be made to the non-titled spouse.

 

You will want to retain clear records of the sources of capital for the business, meaning whether premarital or marital money was used to set up office space, pay rent, and other expenses. Try to keep your business and personal expenses separate, so your personal expenses, income, and valuation of the business do not come under scrutiny.

 

You also need to understand the consequences of not paying yourself an income that is consistent with the market standards. If you are paying yourself less than the going rate for your position, your spouse could still assert that the full estimated figure relating to your job title should be attributed to you as income for purposes of determining support.

Schedule a Consultation with an Annapolis Divorce Lawyer Near You

Are you a business owner in Maryland who is now preparing to enter divorce proceedings? You are going to want to get in touch with the Law Office of Patrick Crawford without delay so you can be confident that your interests in your business will have protection, and you can continue to oversee your business on a daily basis.

The Law Office of Patrick Crawford handles all kinds of complex divorce issues and we will be able to fight to make sure that you can achieve the most favorable possible resolution to your divorce issues, including disputes about business ownership. You can call (410) 216-7905 or contact us online, so you can take advantage of an initial consultation that will let us sit down with you and go over everything you are dealing with and how we might be able to help.


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