In a Nevada divorce, state community property laws apply to a business in the same way as other marital property. Complex issues may arise when a spouse owns or has an interest a business. In most situations, there are several different ways that a property settlement can address business ownership or interests. Potential solutions depend on the specific circumstances.
For the purpose of dividing property in a divorce, business assets are subject to Nevada’s community property laws. Under those laws, business assets acquired during a marriage are community property subject to division, unless a basis exists to establish that the business is the separate property of a spouse.
Determining whether business assets are community or separate property can be a complicated issue in a divorce case. Even if a business existed before the marriage, commingling of assets during a marriage can cause separate property to become community property. Other issues can affect the status of business property as well. The specific facts in a business situation must be analyzed by knowledgeable legal counsel to determine the status of business assets as community or separate property.
Divorcing spouses can negotiate a property settlement and asset division that includes business interests. Reaching a mutual agreement is usually the best way to resolve a division of business assets. If the spouses are unable to agree, the court determines the division, and a judge’s decision may be unsatisfactory to both spouses. Even if agreeing on division of business assets requires assistance from legal counsel for both parties — which usually is the case if business interests are substantial — a negotiated agreement enables the spouses to set their own terms for dividing a business.
When an intended spouse owns a business prior to marriage, a prenuptial agreement may be used to protect business interests as separate property after the marriage. Similarly, married spouses can use a postnuptial agreement to address financial issues in the event of divorce, including division of a business.
If spouses have a valid prenuptial or postnuptial agreement that addresses division of a business in the event of a divorce, the provisions of the agreement may govern distribution of the assets. However, the court reviews the agreement as part of the property settlement proceeding, to ensure that the resulting division satisfies the requirements of Nevada law. If the court finds the agreement invalid or enforceable, community property laws may then apply to dividing the business assets.
The specific circumstances of business ownership affects the availability of potential solutions. One spouse may fully own a business, the spouses may jointly own a business, or there may be third parties who own an interest in a business. Especially if other parties are involved, the business may be subject to a buy/sell agreement that addresses what happens to an interest in the event of divorce. As with any agreement, the terms of a buy/sell agreement relating to the business may be challenged and determined by the court to be invalid.
In most situations, there are three basic options for addressing division of a business in a divorce. The first is for one spouse to buy out the other spouse’s interest in the business. The buy-out can be on a cash basis (with periodic payments if necessary), or it can be an on an asset basis, such as turning over other property like a house, other real estate, or another type of property in exchange for the spouse’s interest in the business. In some cases, it will be necessary to obtain a valuation for the business to accomplish a spousal buy-out, which can be a complicating factor.
The second option is selling the business and dividing the proceeds. This option also may involve establishing the value of the business objectively. Since it can take time to accomplish the sale of a business, this alternative may not be an immediate or viable solution.
Finally, if the divorce is amicable, both spouses may agree to continue owning or running the business together. This approach avoids the need to establish a valuation for the business and enables both spouses to retain their interest in the business. However, it does pose the potential for issues in the future if the two parties disagree about business decisions or the future of the business.
When spouses decide to divorce, the right decision for addressing division of a business often won’t be immediately apparent. For each spouse, experienced legal counsel can assist in evaluating the alternative approaches that are available. When the spouses are ready to discuss possible resolutions, their lawyers can handle the negotiations, to minimize the stress and emotional toll that often accompany property settlements in a divorce.
At The Gersten Law Firm, we help clients with all types of family law matters, including divorce and division of business assets. Attorney Joseph Gersten has the knowledge, skill, and experience to help you navigate through any type of domestic concern. He always takes a compassionate approach to family law matters, while fully protecting the client’s rights and interests.
Your initial consultation is always free. If you need assistance with a family law matter in Las Vegas, Henderson, or elsewhere in Clark County, call 702.857.8777 or contact us online to schedule an appointment.