People preparing for divorce often want to know what they can expect when rebuilding their lives. They want to know what assets are at risk and what they can keep after the divorce. Resources that represent major investments or future financial stability tend to be a priority during divorce negotiations.
For many people, investment accounts, retirement savings and real estate are the biggest focal point during property division negotiations. However, professionals ranging from therapists and dentists to accountants may have a thriving professional practice at risk. They may worry about the need to share company ownership with their spouse or liquidate the business as part of the divorce process.
Is a professional practice the separate property of the spouse who started the company?
Businesses often lead to commingling during marriages
Occasionally, people already had a company in their name when they got married. Other times, they may have inherited it from a family member. People sometimes convince themselves that their professional practice should be their separate property.
However, unless they signed a contract with their spouse explicitly saying as much, their professional practice is potentially vulnerable if they divorce. Typically, people reinvest in their businesses consistently, which puts the business at risk if they divorce.
The use of marital income to maintain or improve an asset is a form of commingling that makes an asset vulnerable to division in divorce proceedings. Professionals may have to perform an in-depth valuation of the practice to determine what it is worth and then estimate how much of that value came from marital funds invested in the company.
Factors such as a spouse doing unpaid work at the business might further complicate the situation. While it is possible to avoid the liquidation or joint ownership of the business in a divorce scenario, the value of the company might have a profound impact on the division of other resources during the divorce.
Those who understand the difference between marital property and separate property, as well as what constitutes commingling, may be in the best position possible to handle complex asset division negotiations when preparing for a divorce. Professionals who worry about their business holdings as they prepare for divorce may need assistance when it comes to knowing what to expect and advocating for the best possible outcome.
