Many men and women who divorce in New Orleans own a business or a share in a business. Most of these people want their businesses to continue after the divorce because they like their work and they need income from the business. While some spouses may work with their other spouse, many work alone or with non-relatives.
There are many factors that determine whether a spouse can protect their business from the other spouse in a divorce. Some of these factors include the type of business, how the business is structured (a proprietorship, partnership, or corporation), where the business is located, the type of experience needed to run the business, and the value of the business.
Louisiana’s property division laws
Louisiana is a community property state. This means that any property, including a business, acquired or developed during the marriage is considered community property. Both spouses have an equal claim to community property, no matter how the property/business is titled. Property that was acquired prior to the marriage is generally not considered community property and belongs to the person who owned the business prior to the marriage date.
A grey area is when you own a business prior to the marriage, but the value of its assets increases during the marriage. The increase in value of the business may be considered community property.
Prenuptial and postnuptial agreements can be used to protect a business
If you have a business before you marry, our New Orleans family lawyers can help. A prenuptial agreement is a contract between two spouses who are ready to wed. The contract can determine what happens to any premarital property you already have and any property you acquire during the marriage.
A prenuptial agreement means that you opt out of the community property system and your property rights are determined by contract law – meaning the terms of the prenuptial agreement.
By using a prenuptial or postnuptial agreement, you can ensure that you keep your interest in any business you owned before the marriage and any business you acquired after the marriage – provided, of course, that your spouse agrees.
Should you buy out your soon-to-be-ex’s share of the business?
Often, the best way to keep your interest in your business is through a buyout agreement. A buyout means that you and your spouse value all your assets. You then decide which assets you most want to keep.
If the division of the property is 50/50 (there may be reasons why it’s not), then you might agree to buy out your spouse’s interest in your business. You can achieve a buyout in several ways:
- You could waive/trade your right to valuable assets of your spouse (such as another business that your spouse wants, your right to the marital home, or your part of your spouse’s retirement benefits) or other waivers of your interests in your spouse’s assets.
- You and your spouse could agree to financial terms so that you pay your spouse a monthly payment until your spouse’s interest in your business is paid in full.
There could be other trade-offs besides waiving your right to certain assets or making monthly payments. If your spouse is entitled to spousal support, you might agree to pay more support if your spouse waives her/his right to your business.
How are businesses valued in Louisiana?
It’s important to properly value your business if your spouse has a claim to the business based on his/her community property interest. Owners of a business normally want the business to have a low value while the other spouse wants the business to have a high value. We work with financial appraisers who understand all types of businesses and the different ways to value them. We also review the relevant tax records and other financial information.
The value may be based on what similar businesses have sold for. The value could also be based on how much income the business yields each year. Other valuation methods may apply.
Practical considerations for keeping a business after a divorce
There may be other considerations regarding your business. Some individuals work with their spouse or for their spouse. For example, a spouse may work as a secretary for a professional or both spouses may work in a restaurant together. We help clients understand when and how a spouse might still be involved with their business (whether they have an ownership interest or not) after the divorce is complete.
There may also be tax consequences that affect the value of a business. We also review any obligations to pay any loans or creditors.
The ability of your husband or wife to make a claim against your business may also depend on the business structure. For example, if you have a partnership agreement, the rights of the other partners if one partner divorces or sells any of their interest in the partnership may affect the right of your spouse to own or participate in the partnership.
Your salary may also affect how much money you have for a buyout, for related matters such as spousal and child support, and how the business is valued.
At the Law Office of James A. Graham, our family lawyers work with appraisers, accountants, and other financial and business professionals. We’ll explain your options and help you achieve your goal to keep your business. Throughout St. Tammany Parish, Orleans Parish, and surrounding parishes, our lawyers are known and respected for our ability to negotiate divorce settlements and litigate family law disputes. To discuss all your marital issues including the protection of a business, please call us or fill out our contact form to schedule a consultation in New Orleans.