When two people work together to build a business, there are usually two types of ownership arrangements—one person owns the business outright, while the other person owns just their share of the business. In many cases, this other person will be married to the company’s owner, and they’ll need to decide how ownership will be divided among them. They also need to think of what should happen if one dies or divorces the other.
A business interest is an ownership interest in a trade or business. For example, if you own your business alone, you hold 100% of your business’s ownership interest. But if you have partners or are part of a larger entity such as a corporation, then it may be possible for another party to acquire a portion of your company’s ownership stake.
When you create an asset with your hard work, no one can take that away from you without legal permission. However, there are exceptions to what is called entitled property, which doesn’t necessarily include all assets a spouse contributes to marriage. Property acquired during marriage by gift or inheritance is not entitled to special protection. The entitled property includes community businesses and interests, items purchased before marriage, and non-community assets.
What Assets Are Entitled Property?
Most property, such as real estate and investments, is typically eligible for equitable distribution if you divorce. Under equitable distribution law, a court may award your spouse up to 50 percent of marital assets. However, business interests aren’t always subject to equitable distribution—for instance, a contract or agreement might determine that interest belongs solely to one spouse. If you’re divorcing with a stake in a business or professional practice, contact an attorney who can help clarify what portion of it your spouse may be entitled to.
Your spouse is entitled to your property when you die or get separated or divorced. If you and your spouse separate, any property that belongs to either of you (property acquired during marriage) will have a presumption of equal ownership in property states, which means it must be split 50/50. In all other circumstances, assets can be given as gifts during life or death through a will.
Separate vs. Marital Property
Separate business interest refers to property that a spouse owns individually. This property may be in their name only, or they could be a part owner with another person or entity. Any joint assets are considered marital property, which is subject to division between spouses if their marriage ends in divorce. Marital property also includes assets, like homes and cars, acquired during a marriage, even if one spouse paid for them separately.
These property rights can also be taken into consideration when determining spousal support. However, separate business interests are always kept separate in probate proceedings. A deceased person’s separate property goes directly to their heirs without going through probate court. In contrast, those who own a piece of property together generally have to work out how it will be divided among themselves.
Evaluate the Worth of the Business Interest
If you hold an ownership interest in a business, you may be wondering how much that interest is worth. In some cases, your spouse or child might also have an ownership stake in your business—or maybe looking to take over after you’re gone. While a third-party valuation is always preferable for establishing fair market value, here are four ways you can evaluate your asset with ease. These approaches are helpful if no outside offers have been made:
It can be a gut-wrenching thing when you realize that all of your hard work and sacrifices for someone else who might not appreciate it as much as you do or even consider it theirs instead of yours. It is important to remember, though, just because they put in their time working with you doesn’t give them any more rights than they had before they started working with you.
Getting a Divorce
Even if you put all your assets in joint names, your spouse may still be entitled to half of them. The good news is there are ways to protect yourself and ensure you don’t end up losing business interests due to spousal entitlement.
It can be hard to know what’s yours when you’re getting a divorce. Worse still, they could sue for half of something that was only yours —even if they had no involvement in its creation. You can hire the best divorce lawyers to protect your interests and fight for your share.
If you have a marital estate and you own a business, there is a good chance that your spouse has an interest in that business. Because of spousal rights, they can claim an ownership interest if the business is doing well and try to claim even more when it’s not. As with many things in life, planning may be one of the best ways to avoid unpleasant surprises down the road.