Divorce and the Family Business

Divorce can be quite complicated when spouses are business partners or have an employer-employee relationship. Minnesota is an equitable distribution state, which means the court divides property in a manner it views to be fair and just, not necessarily 50-50. Here are two scenarios that illustrate the possible complexities.

  • A couple had been married several years during which the husband was the sole breadwinner and the wife raised the children. When the youngest child was old enough to start school, the wife decided to start a cottage business. By agreement, she drew funds from their savings to start the business and worked within the home to perfect the product. She never incorporated and all taxes were paid through the couple’s joint tax return. After a few years of struggling, the wife got a distributor for the product, which allowed her to outsource production to a subcontractor. The business became very lucrative. How much of the business does the husband own?
  • A husband manages his family’s restaurant and takes his wife on as a hostess where she makes minimum wage plus tips. She is engaging and has a great rapport with customers, who look forward to seeing her when they come in. She has a background in marketing and comes up with numerous ideas to grow the business. The husband adopts some of her ideas for redesigning the dining room, revamping the menu, and increasing online and social media marketing. She is never paid for any of this work. The business takes off, serving more customers than it ever had before. When the couple divorces, does the wife have an equity interest in the restaurant?

The court must consider several factors when deciding whether a spouse has an ownership interest in another spouse’s business and how much that interest amounts to. In general, one should assume each spouse has an equity interest in a business owned during the marriage unless the couple specifically designed a prenuptial or postnuptial agreement stating otherwise.

These types of property division cases are always fact-specific, so the skill and experience of a divorce attorney are critical to the outcome. If you’d like additional information about equitable distribution and its effect on your family business, schedule a free consultation with our family law attorneys at Appelhof, Pfeifer & Hart, P.A.

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