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How can divorce affect small or family businesses?

An astonishing number of Minnesotans call themselves business owners. According to federal figures, there are a whopping 520,110 small businesses in the state, each supporting their local community, their workers and of course their loved ones. For a business owner, there is a lot at stake.

With this context, it’s no surprise many people want to know: If I get a divorce, will my spouse get a piece of the business?

Equitable distribution and marital property

In order to start to answer this question, there are a couple of fundamental concepts to know. First, Minnesota is an equitable distribution state. That means the courts won’t divide every asset in half and split it between the separating spouses. Rather, the courts will look to divide property fairly.

The second concept is the distinction between non-marital property and marital property. In a divorce, the courts only divide marital property (with rare exception). How does the court determine if something is marital property? As a good rule of thumb, the courts consider just about anything either spouse acquired during the marriage as marital property.

On the other side, non-marital property generally includes assets one spouse:

  • Obtained before the marriage
  • Received as a gift, bequest or inheritance
  • Got in exchange for non-marital property

That’s just a general guide however. In practice, applying these rules to something like a business – which can grow and change over a long period of time – is trickier.

How non-marital property becomes marital property

If you, a business owner, founded your company before marriage, you might think it is non-marital property. There are some circumstances in which it might become either fully or partially marital property. For example:

  • The increase in income from the business during the marriage might be considered marital property
  • If funds from an investment account started before the marriage were invested into the business, it could become hard to separate them out
  • Participation by a spouse in running the company could also become a factor that affects the characterization

The existence of a legally valid prenuptial agreement can also have a significant impact.

It is important to note, even if a business is considered fully or partially marital property, it does not mean the courts will split it in two. Rather, the judge will take the value of the business into account when divvying up the totality of the property. How that might impact the business depends on the circumstances of the situation.

Ultimately, determining exactly what will happen to your business in the event of a divorce isn’t possible in a blog post. It requires a thorough review of the business, the marriage and overall situation by a lawyer with experience handling dissolution cases with small or family businesses.

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