Divorce is never an easy process. For entrepreneurs, it can be even more complex and challenging, as their business assets often become part of the divorce proceedings. In Oklahoma, a state that follows the equitable distribution principle, this can have significant implications.
Understanding Equitable Distribution in Oklahoma
Equitable distribution is a legal principle that guides the division of marital property during a divorce. Contrary to popular belief, "equitable" does not necessarily mean "equal." Instead, it aims for a fair distribution based on various factors, such as the length of the marriage, the spouses' ages and health, their earning abilities, and the value of their separate property.
For business owners, this means that your business, or a portion of it, could be considered marital property subject to division if it was established or grew in value during the marriage.
What Could Happen to Your Business
Here are some of the potential outcomes of what can happen to your business during or after divorce:
- One spouse retains the business. If one spouse retains the business after divorce, they might have to buy out the other spouse's interest. This can strain finances as it often requires liquid capital. The retaining spouse will need to get a business valuation to determine the worth of the business. The court will use this valuation to calculate the buyout amount. It is important to note that capital gains tax may apply if the business is sold to one spouse. Consult with a tax advisor to understand potential tax liabilities.
- The court orders that the business be sold. In some cases, the court may order the business to be sold and the profits divided between the spouses. Both spouses will need to agree on a sales price, which can lead to disputes if not handled properly. It's crucial to hire a professional business appraiser to ensure a fair price. Hire a professional business broker to assist with the sale. Also, consult with a tax advisor on how to mitigate potential tax liabilities.
- Both spouses retain ownership. If both spouses can work together post-divorce, they may choose to retain joint ownership. A detailed business operating agreement is necessary to outline each party's roles and responsibilities. It should also include provisions for dispute resolution and a possible future buyout.
Strategies to Protect Your Business
Here are actionable tips and strategies to safeguard your business during a divorce:
- Prenuptial or postnuptial agreements. These agreements can specify that the business remains separate property, not subject to division in a divorce2.
- Pay yourself a competitive salary. If you're not drawing a competitive salary from your business, a court might conclude you're investing marital money back into the business, making it marital property.
- Establish a trust. Transferring business assets to an irrevocable trust can protect them from divorce proceedings. However, timing is crucial as courts may view transfers made close to the divorce filing as fraudulent.
- Get a business valuation. A professional valuation can provide a fair market value for your business, which can be instrumental during asset division negotiations.
- Keep good records. Clear records showing what funds were used to start and grow the business can help establish it as separate property.
Consult with Our Property Division Attorneys
At Nichols Dixon, our attorneys are committed to helping make the divorce process straightforward for our clients. If you are a business owner and are involved in a divorce, you can trust our team to work tirelessly to help you protect your business and obtain the best possible case results. From connecting you with appraisers and other experts to handling the case negotiations or litigation, our team is prepared to handle your case.
Contact us online or via phone at (405) 294-1511 to get started on your case today.
