Small business owners put a lot of themselves into the success of their business. They work incredibly hard, take enormous financial risks, and put aside other aspects of their lives in an effort to realize the American Dream. In essence, it becomes a part of an owner’s identity.
Unfortunately, when a small business owner gets a divorce, it puts the business at the mercy of the equitable distribution proceedings. The reason for this is that for legal purposes, sole proprietorships and their owners are one in the same. In other words, when you do your business’s taxes, you do it under your personal tax return. Further, if you are sued, you are personally liable for the liabilities of your business. So if you are getting a divorce, your small business may be entirely subject to distribution.
Further, in the case of a partnership or an LLC, a spouse’s interest in that business may also be subject to property division as part of his or her divorce case.
Is Your Small Business Marital Property?
North Carolina is an equitable distribution state, which means that a family court takes the market value of all marital property and distributes it between spouses. A sole proprietorship or other business interest is subject to examination as marital property if it was started after the date of a couple’s marriage.
Further, even if it was started prior to the marriage, a court can look to contributions of the other spouse to the business, or whether marital property was used to maintain the business, grow the business, or pay its debts. In short, depending on the value of the business, attorneys for both sides will carefully examine and argue over whether the business, or business interest, is partially or entirely marital property.
Are There Other Assets to Offset the Business?
If your small business or business interest is determined to be marital property, then there are several options to keep your business running.
- Keep running the business with your former spouse, and jointly benefit from the profits. This is not an ideal scenario, as it requires you to have a really good working relationship following a divorce.
- Find the assets to outright purchase your spouse’s stake.
- Keep the business for yourself, and agree to use other marital property to give to your former spouse in order to offset the value of the business.
New Direction Family Law
If you want to maintain your small business following your divorce, contact New Direction Family Law. You have worked hard for your business, and we want to make sure that you are aware of every possible way to keep it running. Our attorneys are highly experienced, knowledgeable, and effective. We want to fight for your legal interests, and to ensure that all of your hard work does not fall to the wayside due to a divorce. Our legal team serves Wake, Johnston, Durham and surrounding counties. Call New Direction Family Law at (919) 719-3470 to schedule a consultation, or contact us through our website.
Carly G. Baker
New Direction Family Law