Property division is one of the more stressful aspects of divorce, especially if you own a small business. You know divorce is the best option but are afraid of what’s going to happen to your business. Will your spouse get half the company in the divorce? If you’re the sole owner of the company, is it considered separate property?
Marital property laws in Minnesota
Among most other states, Minnesota is an equitable distribution state, which means the courts will divide property based on what they believe is fair. So if you were hoping for a 50/50 split, it’s time to readjust your expectations. Living in an equitable distribution state can be more beneficial for business owners in the long run but there may be a few hiccups along the way.
Is a business considered marital property if it’s owned by only one spouse?
This is where things get tricky.
Businesses started before the marriage
If you started the business before getting married and continued to work there throughout the marriage, it will have both marital and non-marital aspects. You may be able to keep sole ownership but any profits generated during the marriage may be treated as marital property. Additionally, a business started before the marriage may become “comingled property” if marital funds were used to maintain or improve it. If a judge determines your business to be comingled property, your spouse may be entitled to partial ownership or a portion of future earnings.
Businesses started during the marriage
If you started the business while married in the state of Minnesota, it will be considered marital property. This means your business will be counted as an asset and will be factored into your final divorce settlement.
How are businesses valued in a divorce?
There are a few ways to determine what the worth or value of a business is. One of the following methods is typically used:
- Income method: Examine current earnings as well as future earning potential.
- Market method: Compares your business to similar businesses which were recently sold to determine the market value of your business.
- Asset method: Estimates the value of your business by calculating the value of its assets vs. its liabilities.