The term, equitable distribution takes on complicated meanings when a family business is one of the assets that need to be divided in divorce. Even when one party owned a business prior to the marriage, Minnesota law does not automatically view every aspect of the business as non-marital when operations continue during the marriage.
Family businesses represent one of the most complex property distribution issues that our Minneapolis divorce lawyers encounter when assisting clients with the dissolution of marriage. We believe it often takes a blend of our own legal knowledge and the specialized knowledge of financial resources to help ensure that both parties receive fair treatment when dealing with these challenging issues.
Non-Marital Property is Not Always Protected in Property Distribution Decisions
In a perfect world, dividing property would be as simple as eliminating non-marital property and then finding an equitable (not necessarily equal) way to divide marital property so that both parties walk away with similar levels of wealth. Even a quick review of the MN division of marital property statute, however, indicates that the courts have more latitude — even if dividing non-marital property is necessary to leave both parties in a reasonable financial state.
As long as either party in a marriage continued operations of a pre-existing business after marriage, the financial aspects of that business are generally considered to affect both spouses. Just as post-marital income from an employer would represent marital property, the law looks at the spouse-owned business financials in a similar way. Clearly, making equitable property division decisions under these circumstances is much more complicated than dividing income from outside employment.
Of course, a business that is started by both spouses after marriage is naturally considered to be marital property, but it is equally complicated to divide a business equitably. The law offers a number of options, such as (but not limited to) the following:
- Selling the business and equitably dividing the proceeds
- Arranging for one party to buy out the other party
- Setting up a contract for sharing the profits and expenses over the lifecycle of the business
Family Businesses Represent a Separate Set of Financials
When spouses own their own business, they essentially have two sets of books: one represents household income, assets and liabilities, while the other represents the assets, income and expenses related to the business. Regardless of whether a business pre-existed a marriage or was a joint effort between both spouses, the decision to divorce requires a separate accounting of the business that is most likely far more detailed than typical household financial issues.
Obtaining a reliable business valuation is a virtually inevitable step in deciding property division issues of family businesses during divorce. Perhaps the real question is whether both parties can negotiate a fair settlement without leaving decisions in the hands of an impartial judge. Before losing control over such an important decision, call us at 763-323-6555 or use our convenient contact form to find out how we can help you work toward an equitable agreement.