Is My Spouse Entitled to Half My Business?

Divorce is difficult enough without worrying about what might happen to your business. If you’re a business owner going through a divorce, you might wonder, “Is my spouse entitled to half my business?”

This is a common concern, especially for those who have invested time, effort, and money into building their company. Whether or not your spouse is entitled to a share of your business depends on several factors, including when the industry was started, where you live, and how much your spouse contributed to its growth.

This article will explain everything you need to know about how a business might be divided in divorce, focusing on Nevada’s laws.

Community Property vs. Separate Property

Understanding the difference between community property and separate property is key to dividing assets, including your business, during a divorce.

Community Property

Community property refers to any assets or income acquired during the marriage. In states like Nevada, which follows community property laws, anything earned or acquired during the marriage is typically considered jointly owned by both spouses. This can include:

• Income earned by either spouse.
• Homes, cars, or other significant purchases made during the marriage.
• Businesses started or significantly grew during the marriage.

If your business is considered community property, your spouse may be entitled to a portion of its value.

Separate Property

Separate property, on the other hand, includes assets owned by one spouse before the marriage or assets acquired by gift or inheritance during the marriage. Separate property remains the sole property of the spouse who owns it unless it becomes commingled with community property (more on that later).

Examples of separate properties include:

• A business that had been started before the marriage.
• Gifts or inheritances explicitly given to one spouse.
• Property designated as separate in a prenuptial agreement.

If your business qualifies as separate property, it may not be subject to division during the divorce.

How the State of Nevada Treats Business Assets in Divorce

Nevada is a community property state, meaning anything earned or acquired during the marriage is typically split 50/50 in a divorce. This includes businesses, regardless of whose name is on the business documents or who worked there.

However, Nevada courts do not automatically award half of everything to each spouse. Instead, they consider multiple factors before deciding how to divide the assets fairly. When it comes to a business, Nevada courts will look at things like:

• Whether the business was started before or after the marriage.
• How much did the non-owner spouse contribute to the business (both directly and indirectly)?
• The value of the business and how it changed during the marriage.
• Whether there’s a prenuptial or postnuptial agreement that addresses business ownership.

The goal in Nevada is to reach a fair division, which doesn’t always mean an equal 50/50 split. If your spouse is entitled to part of the business, the court will decide what makes the most sense: awarding them a share of the company, a portion of its value, or other assets to balance things out.

Factors That Determine Whether a Spouse is Entitled to Half the Business

Several key factors can determine whether your spouse is entitled to half—or any portion—of your business. Courts will consider these elements closely before making a decision.

Was the Business Started Before or After Marriage?

The timing of your business’s start can be one of the most significant factors in determining whether it’s community or separate property.

• Before Marriage: If you started your business before getting married, it may be considered separate property. However, if the business grew or you invested marital funds into it during the marriage, some of that growth might be considered community property.
• After Marriage: If your business was started after you got married, it’s typically considered community property unless there’s a prenuptial agreement that says otherwise.

The Role of a Prenuptial or Postnuptial Agreement

If you had the foresight to draft a prenuptial or postnuptial agreement, this could make a massive difference in what happens to your business during a divorce.

• Prenuptial Agreement: A prenuptial agreement, made before the marriage, can clearly outline what will happen to your business. It can designate your business as separate property, protecting it from division.
• Postnuptial Agreement: If you didn’t have a prenuptial agreement, you may have created one after the marriage. Like a prenuptial agreement, a postnuptial agreement can protect your business and outline how it will be handled in the event of a divorce.

These agreements need to be carefully drafted and signed by both parties to be enforceable, and they’re one of the best tools to safeguard your business.

Business Contributions by the Non-Owner Spouse

Even if your spouse didn’t work at your business, they may still be entitled to a share of it if they contributed to its success in other ways.

• Direct Contributions: If your spouse worked in the business, helped build it, or contributed financially, they will likely be entitled to part of the business.
• Indirect Contributions: Even if your spouse didn’t directly work in the business, the court might still award them a share based on their indirect contributions. For example, if your spouse took care of the home, children, or other responsibilities so you could focus on growing the business, these contributions could be considered.

Courts recognize that a spouse’s direct or indirect support can be crucial to a business’s success.

Commingling of Business and Personal Assets

Commingling happens when separate property gets mixed with community property, and it’s a common issue in divorces involving businesses. Separating business and personal assets in a divorce may become difficult if you’ve blended business and personal assets.

• Examples of Commingling: Using marital funds to invest in the business, combining personal and business finances, or paying household bills with business income can all lead to commingling.

Once assets are commingled, they often become community property, making them subject to division during the divorce.

Valuation of the Business in Divorce Proceedings

Once the court decides that your spouse is entitled to a portion of your business, the next step is determining how much the company is worth. Business valuation in a divorce can be complex and often requires professional assistance.

How the Business is Valued

There are several methods that professionals use to calculate the value of a business during a divorce. The chosen method depends on the nature of the industry, its financial history, and prospects. Here are the most common approaches:

• Market Value Approach: This method examines the current market value of similar businesses to determine yours’s worth. It asks, “What would this business sell for right now?”
• Income Approach: The income approach examines the business’s ability to generate future income. A professional will evaluate the company’s financial statements, cash flow, and profit projections.
• Asset Approach: The asset approach looks at the total value of the business’s assets (like property, equipment, and inventory) and subtracts any liabilities (debts or obligations). This method works best for companies with significant physical assets.

Each method has advantages and disadvantages, and the right one depends on your business type. For example, a small consulting firm may be valued differently than a retail store or manufacturing company.

Why You Need a Forensic Accountant or Business Valuation 

Business valuations are complicated, especially when a divorce is involved. Disagreements can easily arise, particularly if one spouse is heavily involved in the business and the other is not. For this reason, hiring a forensic accountant or business valuation is often essential.

These professionals:

• Help determine the fair market value of the business.
• Ensure all financial records are accounted for and adequately analyzed.
• Detect any discrepancies, such as attempts to hide or undervalue assets.

Accurate and fair valuations are important, as they will influence the entire property division process.

Options for Dividing the Business

Once the business’s value has been determined, the next challenge is deciding how to divide it. There are several options, and the right one depends on your unique circumstances.

Buying Out the Non-Owner Spouse

One standard option is for the owner spouse to buy out the non-owner spouse’s share of the business. This means the business stays intact, the owner spouse retains complete control, and the non-owner spouse receives a lump sum or payments over time.

• Pros: The business remains with the person running it, and the non-owner spouse walks away with cash or assets.
• Cons: The owner spouse may need to raise a large amount of money to buy out the non-owner, which can strain finances.

If you have other assets, like real estate or investments, it might be possible to use those to balance the buyout.

Selling the Business and Dividing the Proceeds

Sometimes, the best or only option is selling the business and splitting the profits. This can happen if neither spouse has the means to buy out the other, or if both spouses are too involved in the business to make ownership by one feasible.

• Pros: Both spouses get a clean break and walk away with cash.
• Cons: Selling a business can be time-consuming and may not happen at the most profitable time. Plus, one or both spouses may lose their primary source of income.

If you decide to sell, working with a broker or financial advisor is essential to ensure you get the best possible price for the business.

Co-Owning the Business After Divorce

While less common, some couples choose to co-own the business even after the divorce is finalized. This option only works if both spouses are willing to maintain a working relationship and have a solid plan for managing the business together.

• Pros: The business doesn’t have to be sold or bought out, and both spouses can continue to benefit from it financially.
• Cons: Working with an ex-spouse can be emotionally challenging, especially if there are disagreements about how to run the business.

If you’re considering this option, setting clear boundaries and expectations is essential. You’ll likely need a legal agreement to outline each spouse’s role, responsibilities, and decision-making process.

Protecting Your Business Before and During Divorce

Divorce doesn’t have to mean losing your business, especially if you take steps to protect it beforehand. Here are some proactive measures you can take to minimize the impact of divorce on your business.

Establishing a Prenuptial or Postnuptial Agreement

One of the best ways to protect your business is by creating a prenuptial agreement before marriage or a postnuptial agreement afterward.

• Prenuptial Agreement: A prenuptial agreement can clearly state that your business will remain your separate property in the event of a divorce. It can also lay out how any future appreciation of the company will be handled.
• Postnuptial Agreement: If you didn’t create a prenuptial agreement, a postnuptial agreement can achieve similar results. While these agreements are made after the marriage has already begun, they can still be highly effective in protecting business interests.

These agreements need to be well-crafted and fair to both parties. It’s essential to work with an attorney to ensure their validity in court.

Keeping Business and Personal Assets Separate

Commingling business and personal assets can make it much harder to protect your business in a divorce. To keep things clear, separate business and personal finances as much as possible.

Here are a few tips:

• Maintain separate bank accounts. Keep a dedicated business account that isn’t used for personal expenses.
• Document all transactions. Make sure there’s a clear paper trail for every business-related transaction.
• Avoid using business funds for personal expenses. Mixing personal and business expenses can weaken your claim that the company is separate property.

By maintaining these boundaries, you can more easily show that the business is separate property and not subject to division.

Reviewing and Updating Business Structures and Ownership

Another way to protect your business is by regularly reviewing its structure and ownership. If you run a partnership or have outside investors, these relationships may need to be carefully managed in the event of a divorce.

You can also consider restructuring the business into a trust or corporation, which can provide added layers of protection and limit the amount of the business that is exposed to division in a divorce.

• Trust: Placing your business in a trust can remove it from your assets, helping protect it in a divorce.
• Corporation: Incorporating your business can also provide some protection, especially if you’re the sole owner and there are clear boundaries between your personal and business assets.