Your spouse is entitled to half of your business if it is marital property, per Alabama law. Your spouse may receive half of your business or other assets in exchange for that half during a divorce. An Alabama divorce lawyer familiar with these cases can protect your livelihood.
If you consider your business your career and life’s work, you may decide to stay married for longer or give up more than you should to protect it. You shouldn’t need to remain in an unhappy marriage or give up your prized possessions to protect your business. A lawyer can protect your rights and ensure you know what to expect.
How Property Division Works in an Alabama Divorce
Alabama divorce law recognizes equitable distribution for all marital property, including all assets and debts. Equitable does not mean each party gets half or you may need to split your business. Instead, it means each spouse receives a fair share of the marital assets.
Equitable distribution applies only to property the couple gained during the marriage. The judge evaluates the circumstances surrounding the marriage and divorce and assigns assets and debts fairly to each party. Depending on the case, this could end with your spouse getting half of your business or other valuable assets instead.
Your attorney may recommend negotiating an agreement with your spouse instead of letting the case go to divorce court. Negotiating gives you more control over the outcome, including compromises that allow you to keep control and ownership of your business. When you agree to a fair settlement with lawyers’ help, the judge will likely accept the agreement and issue your divorce decree.
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You Might Own Your Business Separately
In some cases, a business is a separate property. Alabama law assures spouses that they retain full ownership of any separate property, businesses included. It does not entitle the spouse to any part of the business or equal assets instead.
However, according to Alabama law, the business may be marital property if both spouses regularly used the income the business generated during the marriage.
Understanding separate and marital property—and proving a business is not marital property—is complex. You do not want to navigate this without the help of a lawyer well-versed in similar cases. A lawyer can present a strong case for you to maintain control of your business.
When a Spouse Owned the Business Before the Marriage
One spouse owning a company before a marriage is most common in short-term marriages or those that occurred when the parties were older. The most common way this occurs is when one partner starts a company before marriage and maintains ownership of the company throughout the marriage.
In these cases, the business-operating spouse must keep their company money and personal accounting separate throughout the entire marriage. Only one spouse should serve as the business owner in this scenario.
When the court agrees the business is separate property, the other spouse has no claim to business ownership. However, state law entitles them to interests and assets from the profits earned during the marriage. While they did not contribute to the growth and success of the business directly, the income was marital property. They supported their spouse—often by caring for the family and home—while their partner focused on the business.
Other Scenarios That Deem a Business Separate Property
Some businesses are separate property in a divorce because of legal contracts. This could include ownership contracts with other owners or prenuptial or postnuptial agreements between spouses. Your attorney will likely want to review any contracts or other paperwork related to the ownership of your business. This review will help them develop a strategy to protect your interests during divorce.
When a business is a separate property, the courts have no power to alter its ownership during a divorce. Even under the Alabama law that allows judges to award additional assets and alimony when one party misbehaves and establishes the grounds for a fault-based divorce, separate property is untouchable. The judge cannot use any property one spouse acquired before the marriage in their calculations.
What if My Company Is Marital Property?
The law entitles your spouse to equitable distribution of all assets and debts. This includes your business if your company is marital property. However, this does not necessarily mean your spouse will take half your business. There are many possible outcomes of property division. Working with an attorney can help you get a fair settlement or award and may help you keep your business or other prized assets.
Judges have a lot of discretion for property division in equitable distribution states. Your lawyer may present a strong argument outlining why you should keep your business and convince the judge it is fair for you to receive this asset with no ownership rights for your spouse, even if it is marital property.
Even if your spouse does not receive ownership of your business, as marital property, they have a right to interest value in it. The court often handles this by distributing other assets to the spouse.
The court could distribute almost any asset of value that is also marital property, such as:
- The family home
- Vacation properties
- Cars or other vehicles
- Valuable collections
- Retirement accounts
A lawyer can work with you to determine which assets you would be willing to trade for your business, if necessary.
What About Business-Related Debt?
The same laws apply to assets and debts. If your business is an asset considered for equitable distribution in a divorce, so are any business debts. Debts could affect the value of your business in these negotiations or the judge’s distribution of property. Your attorney can help you fairly document your business’ value taking this and other factors into concern.
When a business is a marital property, and you need to negotiate using other assets as trade-offs to keep your company, debts could help your case. Beware, though. If the court awards you ownership of your business, they are likely to also leave you with the related debts.
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Possible Outcomes When Your Divorce Entitles Your Spouse to Half Your Business
If your business is marital property, Alabama law entitles your spouse to a portion of it or other assets instead of it. When the business is separate property, you will maintain control because your spouse is not entitled to any part of the ownership. However, in both cases, the spouse will likely receive other assets such as the family home, investments, and more.
Your spouse will likely obtain assets even if they never worked during the marriage because Alabama courts consider their contributions at home. Raising children, running the home, and supporting a spouse in building a new business can all seem like full-time jobs when you are in the thick of it—and Alabama law agrees.
The possible outcomes of property division involving a successful business could differ depending on whether you take the case to divorce court. Options include:
Options in Court
Taking your case to the judge gives you the least control of what happens to your business. If your spouse challenges your claim to own the business and demonstrates the work they put into building it, the judge could award them control.
With strong documentation showing you built and ran the business, possible outcomes could include:
- The court awards the business to one spouse, and the other receives other assets of similar value.
- The court grants both spouses a part of the business and instructs one to arrange a buyout before a certain date.
If both partners own the business, the courts may force one spouse to sell their share as soon as possible. One spouse charges a fair market price and either locates a buyer or their former spouse purchases their share.
Options in a Negotiated Agreement
Former spouses as business partners may seem like a bad idea to you, but it works for some people. Spouses may agree to co-own or operate a business together following a divorce. Even if one spouse chooses to sell their portion at a later date, this gives the couple the most control of the future of their business, allows both to continue to earn an income, and provides stability for the company.
If you feel this is not a good idea or your spouse does not actively participate in the operation of your company, negotiating an agreement to keep control may be effective. Your attorney can help you create a proposal, or this may be possible during mediation. A settlement that allows one spouse to keep the business and gives the other additional assets in exchange is one of the most common outcomes in these cases.
During mediation, the mediator will discuss how a judge might handle the property division. They may explain how judges commonly use a plan that fairly divides assets with the business going to one partner and other assets of similar value going to the spouse. This could encourage a settlement that allows each of you to choose your preferred assets instead of leaving it to the judge to decide.
How to Improve Your Chances of Keeping Your Business in a Divorce
While it is likely too late for a postnuptial agreement that makes your business separate property in a divorce, you can take steps to develop a strong case for retaining ownership. Your attorney can also review your case’s details and add them to this list.
First, you must have clear accounting records for your business. You must ensure all personal and business finances are separate and that you never take money from your business to pay for personal expenses or vice versa. If this occurred in the past, discuss your options with your attorney. They can help straighten out the accounting and ensure this does not become an issue in negotiations, mediation, or court.
Next, choose an attorney and enlist their help with your divorce and property division. When you hire a divorce attorney who works with business owners, high-asset families, professionals, and others with a career to protect, you choose to have someone on your side to protect your best interests.
Your attorney can:
- Answer your questions
- Help you explore your options
- Value your business and other assets
- Manage negotiations with your spouse and their lawyer
- Represent you in mediation and court
- Guide you through the divorce process from start to finish
- Help you understand the pros and cons of any proposal
- Fight to help you keep your business and reach other goals
It only makes sense that you want to protect your livelihood and life’s work. Your business is not only your career but what will support you and your children for years to come. The thought of losing control of something you worked to build from the ground up is scary. Your attorney will help you fight for your company and ensure your spouse, their attorney, and the judge hears your voice.
Protect Your Interests With Help From an Alabama Divorce Attorney
If you have concerns about protecting your business or other assets during your Alabama divorce, working with a lawyer who handles high-asset divorces and divorces for professionals may help assuage your fears. They understand your rights and know-how to help you fight for the best possible outcome, including reaching an agreement to keep your business or winning your case in divorce court.
This process can be complex, but lawyers can guide you through it. Many family law firms provide confidential, no-obligation evaluations so potential customers can learn more and get answers to their questions. Contact a divorce attorney today to get started protecting your business.