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Commingling funds puts business ownership at risk

On Behalf of | Sep 8, 2021 | Divorce

Business owners and their spouses planning to divorce generally understand the concept of marital property and nonmarital property. While there are exceptions for inheritance, gifts, disability rewards, and a few other premises, marital property in Kentucky involves assets (and debts) accrued during the marriage. Couples equitably divide them. Nonmarital property is assets accumulated before the marriage or through the exceptions listed above. The spouse gets to keep these for themselves.

These definitions are relatively straightforward, but the picture can get more complicated when there is a business and when that business involves commingled assets.

Commingling assets makes them marital

Unless there is a binding prenuptial agreement regarding a business (or other significant assets), the assets can become commingled. Examples include:

  • The value of the company greatly increases during the marriage.
  • The business owner did not draw a typical salary, thus using marital funds or the spouse to support the business.
  • The business was incorporated during the marriage.
  • The non-owner contributed to the success of the company during the marriage.
  • The non-owner supported and cared for the family, leaving the business owner to focus on the business.
  • The business owner used marital funds to support the business.

Valuing the business

The spouses will likely have different numbers, so bringing an expert to value the business is often helpful. Ideally, the business owner and their spouse agree to the value and the percentage of ownership and divide the marital estate accordingly – other high-value assets like real estate then counterbalance the business’s value. If the company is worth more than an equitable share of the marital assets, it may be necessary for the owner to gradually buy out the spouse or sell the business.

Those with questions regarding the specific circumstances of their divorce and one or more businesses involved often can get answers from family law attorneys. These legal professionals can examine the details of business and marriage and provide specific insights.