If you own a business and your marriage is coming to an end, it’s natural to wonder: “Can I sell my business before divorce?” This question is especially common when you and your spouse aren’t on good terms, and you’re unsure how the value of the business will be considered in divorce, especially after all the effort you’ve put into it.
The truth is that selling a business before the divorce can be complicated, and the process rarely goes smoothly. Courts often closely examine these sales because both spouses have financial interests at stake.
But don’t worry—by the end of this article, you’ll have a clear understanding of how selling a business before divorce can affect your financial situation and legal rights. So, let’s dive in!
Can You Sell Your Business Before a Divorce: Key Considerations
Selling a business before a divorce may seem like a way to avoid complications in asset division, but it’s a decision that comes with legal implications and consequences. If you’re wondering, “Can I sell my business before divorce?”, the answer depends on factors like ownership structure, state laws, and whether the business is considered marital property.
So, understanding the legal considerations of divorce business laws in your state is crucial to avoiding legal disputes. Here are the key factors to consider:
#1. Marital Property and Business Assets
In divorce proceedings, assets are categorized as either marital or separate property. Marital property is acquired during the marriage, while separate property is what spouses had acquired before marriage.
So, the first thing would be to determine whether a business is classified as marital property or separate property. Even if one spouse started the business before the marriage, it may still be subject to division if:
The business increased in value during the marriage
Marital funds were used to support or grow the business
The other spouse contributed to the business, either financially or through unpaid labor
For example, according to Section 760 of the California Family Code, any asset acquired during the marriage—including businesses—is presumed to be owned equally by both spouses. Even if the business was started before marriage, its increased value during the marriage could be subject to marital property sale rules.
On the other hand, Section 236 of the New York Domestic Relations, which follows equitable distribution, states that courts assess multiple factors when determining how business assets should be divided, including the spouse’s role in the business, the length of the marriage, and financial contributions.
#2. Impact on Divorce Proceedings
Selling your business before the divorce proceedings can raise concerns in court, especially if the sale happens too close to the divorce. Such a sale, the court may view as an attempt to hide assets or reduce the marital estate in order to prevent the other spouse from receiving a fair share.
Because of this, selling a business before divorce comes with risks and may lead to potential complications, such as:
Risks of Selling a Business Before Divorce
Selling to reduce a spouse’s share. If one spouse sells the business just to keep the other from getting a fair share, the court might give the other spouse more of the remaining assets or order them to be paid back.
Business sold too cheap. If the business is sold for less than it’s worth, the court may step in to check if it was done on purpose to lower the other spouse’s share.
Divorce delays. If a business is sold without the other spouse’s consent, the court might pause the divorce until it reviews the sale to make sure everything is fair.
For example, Under Section 518.58 of the Minnesota Statutes, any attempt to hide or devalue a business before a divorce could result in the court awarding a larger share of other assets to the affected spouse.
#3. State Laws & Jurisdiction
Each state has its own laws governing marital property sale and asset division in divorce. Some states follow community property laws, requiring an equal 50/50 division of assets, while others follow equitable distribution, which aims for a fair, but not necessarily equal, division.
For instance, according to Section 3.002 of the Texas Family Code, all marital assets, including businesses acquired or grown during the marriage, are divided equally unless the court finds compelling reasons to do otherwise.
As stated in Section 61.075 of the Florida Statutes, courts consider factors such as business contributions, financial misconduct, and future earning capacity when dividing a business or its sale proceeds.
Should You Sell or Liquidate Your Business?
When divorce is involved, deciding whether to sell or liquidate your business depends on its current state and your future goals.
Selling the business is a better option if the business is thriving. Namely, it allows you to transfer ownership to a new party, possibly negotiating ongoing payments, a continued position, or even a stake in the business.
Liquidating the business involves closing the business and selling its assets, so this option works better if the business is struggling or is unprofitable. It provides quick cash to settle debts and move forward without financial strain.
Liquidation, in the case of divorce, is often an easier option as it involves less complexity and fewer legal procedures than selling the business.
Pros and Cons of Selling Your Business Before a Divorce
A divorce and business sale is not an easy combination to navigate. Deciding whether to sell a business before a divorce depends on several factors, including financial goals, the success of the business, and the complexity of your divorce settlement.
Let's examine both the pros and cons of a pre-divorce business sale.
#1. Pros
Let’s look at the benefits of selling your business before a divorce:
Simplifies asset division. Selling the business converts it into liquid assets, which makes it easier to divide in the divorce.
Avoids ongoing disputes. A divorce business sale, before the legal process begins, can prevent lengthy negotiations over the company's valuation, future earnings, and management control.
Ensures fair valuation. If both spouses agree to sell, a pre-divorce planning business sale is often preferable to avoid undervaluation in court, which could happen if one spouse tries to minimize the other's share.
Provides financial stability. Liquidating the business ensures both spouses have financial resources for post-divorce life, which reduces the financial uncertainty that often comes with divorce.
#2. Cons
Now, here are the potential downsides to consider:
Loss of future income. If the business is profitable, selling it eliminates a potential long-term income source that could have supported both parties after the divorce.
Tax implications. A divorce business sale can result in significant capital gains taxes and transaction fees, which could reduce the final amount received from the sale.
Timing risks. Selling under pressure due to an impending divorce can force a lower sale price, making it a less favorable financial decision. Without proper legal divorce advice for business sale considerations, the outcome might not be as beneficial as expected.
Dividing Business Assets in a Divorce
Dividing business assets in a divorce can be complex, especially if both spouses have a stake in the company. When a business is sold, the business sale asset division depends on several factors, including ownership structure, contributions, and legal documents made before and during the marriage.
If a business is considered marital property, its value must be fairly divided between spouses. This could mean:
Splitting the sale proceeds based on ownership percentages
One spouse buying out the other’s share
Selling the business and dividing the profits equally or as agreed
On the other hand, if the business is separate property, one spouse may not be entitled to any share—unless legal agreements state otherwise. Several legal agreements can impact how business assets will be divided, including:
Prenuptial agreement. Signed before marriage, this contract can specify whether a business remains separate property, protecting it from division in a divorce.
Postnuptial agreement. Signed after marriage, this agreement clarifies how business assets should be divided in case of divorce.
Marital settlement agreement. This document, signed during the divorce process, outlines how all marital assets, including business proceeds, will be split.
Separation agreement. Signed when spouses separate but before divorce, this document can establish terms for business asset division as part of the legal separation process, including whether one spouse will keep the business or it will be sold.
How to Sell Your Business in 5 Steps
Selling your business requires careful planning to get the best price and ensure a successful transition. Here's a step-by-step guide to help you navigate the process:
How to Sell Your Business in 5 Steps
#1. Evaluate Your Business Value
Assess your business's value by reviewing profit and loss statements, balance sheets, and tax returns. Identify key assets such as equipment, real estate, and intellectual property and research your industry and competitors to understand market value.
#2. Develop a Sales Strategy
Decide how you want to sell your business. If you already have a buyer, you can sell privately, use a broker to find qualified buyers and negotiate contracts on your behalf, or choose an auction for a faster sale.
#3. Prepare Financial & Legal Documents
Having transparent, well-documented financials builds buyer trust and speeds up the sale process, so organize essential paperwork, including tax records, financial statements, business licenses, and contracts with employees, suppliers, and clients.
#4. Negotiate Terms
Discuss key aspects of the sale, including the final price, payment structure (lump sum or installments), and transition period. Clearly define whether you'll remain involved temporarily to assist the new owner or exit immediately after closing.
#5. Finalize the Sale
Once terms are agreed upon, sign the necessary contracts, transfer business ownership, and provide a buyer with any required training or support. Engaging a lawyer through a power of attorney can help in the drafting of the purchase agreement, reviewing the terms, and ensuring compliance.
Protect Your Business Assets with Contracts.net
Dividing business assets? Contracts.net makes it simple to create legally sound agreements that protect your interests at every stage of your marriage. With that in mind, you can choose any of the following builders to easily create various legal documents:
Prenuptial agreement builder—Protects business assets before marriage
Postnuptial Agreement builder—Clarifies asset division during marriage
Separation agreement builder—Establishes terms before divorce
Marital settlement agreement builder—Finalizes asset division in divorce
No costly legal fees—just reliable, customizable documents tailored to your needs!
Final Thoughts
Understanding the key issues involved in selling the business before divorce helps you make informed decisions on how to proceed, navigate the process, and weigh potential benefits and risks.
If you’ve ever asked yourself: “Can I sell my business before divorce?”, consider that the answer relies on factors like the classification of your business as marital or separate property, legal restrictions, and financial implications.
With a clear understanding of the possible outcomes, you can reduce the risk of unexpected surprises and increase your chances of a successful sale.
Can I Sell My Business Before Divorce FAQ
Whether you can sell your business without your spouse’s consent depends on its classification. If it’s a separate property, you likely can. However, if it’s marital property, selling without consent may lead to legal complications, as the business is subject to division in divorce.
You can lose your business in a divorce if the business is classified as marital property, as your spouse may be entitled to a share. However, if your business is properly valued and the assets are divided fairly in the divorce, it can help ensure you retain ownership of the business, especially if it's considered separate property.
A prenuptial agreement is not required to sell your business before divorce, but it can help protect your ownership and prevent the business from being considered marital property. Without one, the court will consider various factors when dividing assets.
