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How does a spouse’s business ownership affect divorce settlements?

On Behalf of | Jul 5, 2024 | Divorce |

Divorce can be a complicated process, especially when one spouse owns a business. In Alabama, several factors determine how a business is divided during a divorce. 

Understanding these factors can help spouses navigate this challenging time more easily.

Determining business value

First, the court must determine the business’s value. This process usually involves a professional appraiser who examines the business’s assets, liabilities, income, and market conditions. The appraiser’s evaluation helps establish a fair market value, which is necessary for equitable distribution.

Marital vs. separate property

Next, the court considers whether the business is marital or separate property. If one spouse started the business before marriage, it might be separate property. However, if the business grew or changed significantly during the marriage, the increased value might be deemed marital property. Contributions from the non-owner spouse, such as working for the business or investing money, also influence this decision.

Equitable distribution

Alabama follows the principle of equitable distribution, meaning the court divides marital property fairly but not necessarily equally. When deciding how to split a business, the court looks at each spouse’s contribution to the business, their economic circumstances, and the marriage’s length. The court aims to reach a fair division, considering both parties’ future financial stability.

Options for division

There are several ways to divide a business in a divorce. One option is for the owning spouse to buy out the other spouse’s share, paying them a lump sum or through a structured settlement. 

Another option is selling the business and splitting the proceeds. In some cases, the spouses may agree to continue co-owning the business, although this requires a high level of cooperation and trust.

Legal and financial advice

Navigating business division in a divorce requires legal and financial advice. Consulting with an experienced attorney and financial advisor can help spouses understand their rights and make informed decisions. 

Understanding the laws in Indiana can allow you to reach a fair and equitable settlement, helping both parties move forward with their lives.