For many, the entrepreneurial process is a long one. The idea may have come to you years back, long before you ever even met your spouse. You may have put the idea on the backburner until you had enough money saved to quit your regular job to pursue your dream. If you are lucky, this great idea you had long ago will pay out in a big way. In the event of a divorce, does your spouse have any rights to this brainchild that you came up with long ago?
It depends. Absent any prenuptial agreement or contract stating otherwise, the rules and definitions governing equitable distribution will shed light on this question. Separate property is defined as all real and personal property acquired before marriage, or property acquired during the marriage by bequest, devise, descent or gift. If you start your business prior to marriage with separate funds used as capital, your interest in the business is separate.
But be aware, simply because the business interest was acquired prior to the date of marriage, it does not mean that the non-owner spouse can take no value from it. If during the course of the marriage you transfer marital funds into the business, then your spouse is entitled to a portion of the value of these funds.
More importantly, labor-related contributions to the business given by either spouse during the marriage will affect an equitable distribution claim. That means the time you spend growing the business during your marriage has a value. If this effort on your part resulted in an active increase in the value of the business, then your spouse is entitled to a portion of the value of the increase. Along the same lines, if your spouse puts effort into making the business thrive, then he or she is entitled to some value for the active increase.
The point is, even if you started your business long before your marriage, chances are that at least a portion of the value of the business will end up being marital. That doesn’t mean that your spouse will have an ownership interest in the business, it simply means that you will owe some value based on the factors outlined above.
