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How to Protect Your Business in a Divorce

The Big Split: How to Protect Your Business in a Divorce.

Divorce is a highly stressful time in your life. When it comes to splitting marital assets with your soon-to-be ex, the legal complexities can invoke feelings of concern, confusion, and anxiety.

We know that the state-specific framework of family law can be a difficult route to navigate, making it all the more challenging to predict what the future holds after your return to singledom.

When it comes to splitting your hard-earned assets with your ex, you might be wondering how you can hold on to what’s rightfully yours. After all, the last thing you want is for your business to go down the drain after an uninvolved spouse inherits a portion—especially after you’ve invested years or decades of effort into building it.

Fortunately, there are steps you can take to protect your business in a divorce.

How Does Maryland Split Marital Assets in a Divorce?

In the event of a divorce, the U.S. is categorized by 2 types of states: community property states and equitable distribution states. Because Maryland qualifies as the latter, the state will attempt to divide your marital assets as fairly as possible, whereas community property states attempt to do so as equally as possible.

So, what exactly does this mean for you and your livelihood?

For starters, know that the court will take any applicable factor into account when determining the big split. Since your spouse is not automatically entitled to half of everything, equitable distribution could work in your favor.

That said, it’s important to be prepared for anything the court may take into consideration during divorce proceedings, such as:

  • How long you were married
  • Each spouse’s physical and mental health condition
  • Each spouse’s financial history (such as asset management, spending, and debts)
  • Annual income, employability, and earning potential
  • Marital misconduct (infidelity, abuse, domestic violence, etc.)
  • A couple’s tax burden after the distribution of marital property
  • A spouse’s profession
  • Anything else the court deems relevant to your case

This is far from a comprehensive list, as the court can take a wide range of information into account during divorce proceedings. It is always wise to seek counsel from a licensed legal professional to assist with your unique case. Relying on a trusted divorce attorney can make all the difference when it comes to advocating for your rights, protecting your assets, and securing the outcome you deserve.

I Started My Business Before My Marriage. Does It Still Count as a “Shared” Asset?

Like most things in family law, the answer isn’t necessarily black or white. From a general perspective, starting or owning a business pre-marriage can offer a more positive outlook when it comes to retaining your ownership.

Nevertheless, this does not guarantee that your spouse will walk away with little to nothing.

From an equity-based perspective, your ex may still claim their part of your business based on their involvement during your marriage, meaning that if your spouse contributed to your business at all—whether that was working directly with you, or simply helping to maintain your home while you were away running the business—the court might see fit to grant your partner a portion of the business during your divorce.

It’s safe to assume that if you started your business after marriage, it will likely be divided as a marital asset. If you owned your business before marriage, your spouse’s contributions during your partnership can still hold water in court, regardless of when the business began.

Regardless, the equitable distribution of a business you owned pre-marriage is preferrable to the alternative. If you play your cards right, you can still retain all or most of your business.

If you’re hoping to avoid gaining a new business partner in the divorce, here are some things to consider.

3 Ways to Protect Your Business in a Divorce

Assuming you and your spouse do not have a prenup or postnuptial agreement in place prior to the divorce, there are other things worth considering if you wish to retain your business during divorce proceedings. Here are some ways to protect yourself:

  1. Consider a partnership, shareholder, or operating agreement. Taking the precaution of structuring your business as an LLC, sole proprietorship, or having a shareholder agreement in place can really pay off in the long run. These precautions cannot guarantee that your spouse will walk away with nothing, but at the very least, they will ensure that there are legally binding limitations in place to protect you, your business, and any shareholders from liabilities.
  2. Consider a buyout. For many divorcees, selling your business is simply not an option. Maybe you worked extremely hard to get the company off the ground or feel sentimental about it for familial or personal reasons. Whatever the reason, you can always consider “buying out” your partner. A buyout might be viewed as a last resort for some couples, as it typically implies that your spouse is entitled to some degree of ownership. Regardless, buying out your ex is an efficient and effective way to make sure they don’t become your business partner.
  3. Always pay yourself a competitive salary. If you’re like many people, your business is your baby. You worked hard to raise it, nurture it, and help it grow up to be successful. Although it can be tempting to reinvest every penny back into your business, it’s worth the extra second to consider how this can impact your future—particularly in the event of a divorce. Look at it this way: if you never bring your salary home, there’s a possibility that your partner will attempt to convince the court they never “reaped the benefits” of the business’s profits, making it more likely for your spouse to earn a percentage of it.

Don’t Want to Have Your Ex as a Business Partner?

Navigating the intricacies of family law can be tricky on your own. Even if you have a positive outlook on the final outcome of your divorce proceedings, nothing is set in stone. That’s why it is always best to consult with a legal professional who knows family law. Their legal experience and counsel can work to your advantage, and greatly increase the chance that the court will reach a just and reasonable decision.

Don’t risk throwing away your business, your life, and your future. Book your free consultation today. Contact Attorney Matthew Penick at (410) 618-0863 to learn how our firm can help protect what is rightfully yours.