There are several types of property that may belong separately to one spouse even after years of marriage. Some people negotiate prenuptial agreements that clearly establish specific assets as their separate resources.
Assets designated as separate in a prenuptial agreement are typically not subject to division when spouses divorce. The state also treats assets owned prior to marriage as separate property in most cases. Additionally, any assets that people receive as gifts or as part of an inheritance may theoretically remain the separate property of one spouse.
Frequently, people rush to the conclusion that they can preserve specific assets as separate property when they divorce. If one spouse inherited the family business from a parent or started the company before getting married, they may assume that the business is their separate property. However, the situation might be more complicated than they initially realize.
Commingling is common when running a business
People who run successful companies generally have to continue investing in the business for as long as they operate the organization. They may need to acquire new machinery, expand their facilities or invest in research and development to improve their products.
Frequently, those investments require the use of marital income. When a business owner reinvests marital income in their company, they open themselves up to claims of commingling that could give their spouse an interest in the business.
It is also somewhat common for spouses to provide unpaid labor at family businesses or small professional practices. They act as a receptionist, clean the space and do other tasks to save the business money and make the company more profitable. Those actions can also potentially give them an interest in the company in the event of a divorce.
Some people intentionally draft prenuptial agreements protecting their businesses as separate property to address the risk of commingling. Without that extra effort, the company could actually be part of the marital estate even though it theoretically fits the criteria for separate property.
Dividing ownership isn’t always necessary
Even in cases where the business is technically part of the marital estate, the spouse who runs the company doesn’t have to share ownership of the business or liquidate their interest in the company during a divorce. They simply need to account for the value of the company as they negotiate terms for property division.
Business owners have more at risk than many people in a divorce scenario. Learning about the law and developing a realistic strategy is generally beneficial for those facing divorce with complex assets, such as businesses and professional practices.
