Divorce can impact your financial future, especially if you own a business. Without safeguards, your business could become part of the marital assets subject to division. Understanding how Maryland law treats businesses in divorce can help you protect your interests.
Is your business marital property?
Maryland follows an equitable distribution system, meaning courts divide property fairly, not necessarily equally. If you started your business during the marriage, it may be considered marital property. If you owned it before marriage, but its value increased due to marital efforts, the added value might be subject to division.
Use a prenuptial or postnuptial agreement
A prenuptial or postnuptial agreement can clarify how the business will be handled in a divorce. These agreements outline ownership rights and prevent disputes over the business’s value and division. Courts generally enforce these agreements if they are fair and properly executed.
Keep business finances separate
Mixing personal and business finances can make it harder to distinguish the business as a separate asset. Maintain separate bank accounts, financial records, and tax filings. Avoid using marital funds to support the business, as this could strengthen a claim that it is marital property.
Pay yourself a fair salary
If you reinvest all earnings back into the business instead of taking a salary, your spouse could argue that they deserve a larger share of assets. Paying yourself a reasonable salary demonstrates that business profits contribute to the household, reducing claims on the company itself.
Consider a buy-sell agreement
A buy-sell agreement, often included in business partnership agreements, can outline what happens if an owner divorces. This agreement can limit a spouse’s claim to ownership and establish a process for valuing and transferring shares.
Valuing the business in a divorce
If your business is subject to division, it must be properly valued. Maryland courts may consider factors like revenue, assets, and goodwill. A professional valuation can ensure accuracy and fairness during negotiations.
Protecting your business in a divorce requires planning, clear agreements, and financial boundaries. Taking proactive steps can help you maintain control and stability during a divorce.
