A divorce can be an emotionally stressful and difficult experience to navigate. The two most challenging tasks encountered when there is an impending divorce involve making decisions about how shared children should be cared for and how shared, i.e. marital, finances are to be distributed. If the couple also has a family owned business at the time of the divorce, this can prove to be an additional challenge. This article explores the specific factors involved in how a family business may be dealt with in a divorce.
The meaning of equitable distribution in Massachusetts divorce law
Massachusetts is what is called an ‘equitable distribution’ state. This means that when a divorcing couple turns to the court to settle or authorize a divorce, shared marital assets must be distributed fairly. The term ‘fairly’ doesn’t necessarily mean ‘equally’, as there are many factors surrounding the couple’s relationship and the way they acquired the assets they owned at the time of the divorce, all of which are taken into careful consideration when the court decides how these assets should be divided ‘fairly’.
As far as a family business is concerned, it may also be treated as part of the marital assets, so the value of the business may be added to the value of all other marital assets for consideration when a decision about how assets are distributed is made by the court.
What are considered to be marital assets in Massachusetts?
Marital assets are assets acquired by one or the other spouse or both during the time of the marriage. For example, if the couple buys a home together, even if each spouse has contributed different amounts of money to purchase it, the value of the house will be considered as marital assets for distribution at divorce. Equally, any savings made during the marriage, however they are secured, may be considered as marital assets. The value of a family business that is started and managed during the marriage will also in most cases be considered as marital assets.
Not all assets owned by one or the other spouse may be considered as marital assets. For example, any assets owned by one of the spouses before the marriage began, or were acquired as a result of a personal gift or inherited, may not be considered as part of marital assets and therefore would not be divided between the two spouses by a court, but would remain the property of the spouse who owned them.
This means that if one of the spouses had already owned a business before getting married and had kept the business in their name alone, they may not have to have its value taken into consideration by the court when making decisions about shared assets. This may not be true for every pre-owned business. If, for example, the value of a business has grown during the course of the marriage, the increase in value may be taken into consideration by the court, especially if the non-owning spouse claims that the growth in the business was a shared achievement.
How the Massachusetts Family Court decides what is ‘fair’ when deciding on marital asset distribution
As has already been mentioned, Massachusetts is an equitable distribution state, but not an equal distribution state. The court considers many aspects about the marriage when considering what is a fair distribution of marital assets. The longer the couple has been married, the more careful the judge must be when assessing how the shared assets of the couple should be distributed. These are some of the factors the judge will consider when deciding on asset distribution, including the value of a family business:
- the age of each spouse;
- their individual health;
- how long the couple were married;
- the occupation of each spouse;
- the contribution of each spouse to the family business;
- the contribution of each spouse to the couple’s income other than that of the business;
- the contribution of each spouse to other aspects of family life;
- the employability of each spouse;
- the viability of the business after divorce;
- the needs of each spouse after the divorce;
- the needs of dependent children after the divorce;
- any other factors that could be considered by the judge;
Considerations when a family business is involved in a divorce in Massachusetts
Not all divorces end up in a petition to the Probate and Family Court for a decision about marital assets and how to deal with a family owned business. The two spouses can come to an amicable agreement about what to do about their finances and present this agreement to the court themselves. If the business, for example, was partly owned by both spouses, then there are various options that the couple can consider. The business could be sold and the proceeds of the sale divided between the two spouses. One of the two spouses could keep the business, but forfeit some of the other assets in compensation or buy out their spouse’s share with assets of their own. The couple could even keep shared ownership of the business even if they are to separate their personal lives.
There are also provisions that could be made prior to a marriage which could minimize the possibility of a dispute over business ownership. If one or the other spouse already owned the business before the marriage, the ownership of the business could have been included in a pre-nuptial agreement, or its fate determined by a postnuptial agreement.
The more difficult and often contentious decisions arise when a business may have been started by one of the spouses before the marriage started, but the other spouse contributed to a greater or lesser extent during the marriage. Under Massachusetts law, that spouse would have grounds for claiming part of the increase in value of the business.
Talk to a divorce attorney if you have a family business in Massachusetts
Divorces can be stressful and challenging, but more so when a family business and substantial marital assets need to be considered when making decisions about how these assets are distributed. If spouses cannot negotiate a settlement which they both agree on by themselves, then one or both spouses need to talk to a Boston divorce attorney to consider their options before petitioning the court.