Category: Finances

Key Takeaways:

• In divorce, above everything else, your business is an asset to be divided.
• If the business pre-dates the marriage and marital funds were not co-mingled, it should remain separate.
• If you start a business while married, it will likely be considered marital property.
• That doesn’t mean it will automatically divide the company equally.
• There are several options available, such as one spouse buying out the other, selling it outright, or using it as a negotiation tool in exchange for another asset.

If you own your own business, you pour your heart and hard work into it. They not only represent your passions and drives, but there are also practical concerns. Especially when it comes to divorce. Is a business something the courts divide in a divorce? Can you protect your business in a divorce?

If you’re in this situation, you probably have a lot of questions. We’ll do our best to provide some answers, though they might not always be easy to hear.

Is a Business A Divisible Asset During Divorce?

In divorce, above everything else, your business is an asset. It’s also probably one of your most valuable assets.

The process of ending a marriage is already a snarl of dividing shared assets, property, and debt. When a business factors into the equation, it presents a whole different set of problems and challenges. You must consider many issues and answer a variety of questions.

• Are you and your spouse business partners?
• Did you start the business before the marriage?
• Did you start the business during the marriage?
• Do you have outside collaborators or investors?

How this plays out directly impacts your livelihood and quality of life. It’s a tricky road, and with that in mind, here are some considerations to keep in mind when dealing with a business during divorce.

Related Reading: How Is Property Divided In Oregon?

Businesses Are Assets In Divorce

You likely have a deep personal connection to your business. Whether it’s a restaurant, a dog walking service, or you make artisanal hummus, you put years of your life into this venture.

Since the courts view your business as an asset, in the end, it treats it as such.

It may have great personal worth, but it also has a specific dollar value, and that’s what the court looks at. It’s one of many things to break down and distribute between you and your spouse during the division of property.

Related Reading: Common Financial Mistakes in Divorce

What Are the Business Origins?

As we said above, when you started a business often has a substantial impact on how the courts divide it during a divorce.

Businesses Started During a Marriage

While you can use a prenuptial agreement to shield your business if it exists before your marriage, what can you do if you start a business during your marriage?

If you start a business while married, it will likely be considered marital property. This means it will probably be vulnerable to division in a divorce. Similar to other assets acquired during a marriage, the courts will view this as belonging to both spouses.

This unfortunately means you may have limited options when it comes to protecting your business from divorce. That said, you’re not completely without ways to cover yourself.

Just because the court views a business as the property of both spouses, that doesn’t necessarily mean it will divide the company between the two parties. The court could assign the business to you and award other assets to your spouse to offset any discrepancy.

You also have other options to protect your business during your marriage:

Postnuptial Agreement: A postnuptial agreement can help safeguard a business you start after you marry. Similar to a prenup, this contract allows a couple to specify who gets a business, or other assets, in the event of divorce. This offers one way to protect your hard work, helps shield your business, and ensures your financial future.

A Trust: Another option to protect your business during divorce is to create trust. This strategy comes with a laundry list of complicated legal concerns, but it may work in certain cases. You’ll want to talk to a lawyer if this option interests you.

Businesses Started Before a Marriage

Things do change if the business predates your marriage. In this case, the court will likely view it as, at least in part, separate property. But other factors influence and complicate this status.

If you invest joint funds, that changes things. Commingling marital and business assets further muddy the waters. When your spouse invests sweat equity in the business, that also blurs the lines.

Related Reading: Creating a Divorce Strategy

Dividing A Business: Valuation, Division, and Allocation

Valuation

One big factor that impacts business during divorce is valuation. If you have an attorney, one major decision to make is whether or not to have the value of a business appraised.

In the case of many smaller service-oriented businesses, like hair salons or construction companies, they don’t necessarily have substantial “goodwill.” When it comes to accounting, “goodwill” refers to intangible assets that aren’t separately identifiable and quantifiable. Think reputation and position in a particular marketplace, among other variables.

In situations without goodwill, a business is worth what you can easily measure. It amounts to assets less liabilities. They create an income and are more akin to a traditional job.

But other businesses have a value beyond that. A company with high standing in its field has a higher value than one with a lower position, even though that’s difficult to put a dollar amount on.

When it comes to this type of business during divorce, a good appraiser is often critical to determining an accurate value. This, however, is not cheap. It can cost anywhere from $5000 to $15,000 depending on the specific situation.

Ways to Divide And Allocate

Much like how you have multiple options to protect your business during divorce, you also have various ways to divide and allocate a business in the settlement. A few potential strategies include:

• Buy-Out: One common option is for one spouse to buy out the other. This works best when one has more interest in continuing to run the business than the other.
• Forfeit Other Assets: As stated earlier, couples often work out a split that’s favorable to both parties. For example, in exchange for the business, you may give up any claim to a shared home or other valuable properties.
• Divide the Business: In some cases, you may have the option of splitting a company into separate businesses. For instance, if you and your spouse run an accounting firm and have distinct clients, this option may work.
• Sell Out and Move On: If it’s impossible to work out any other arrangement, your best option may be to sell the business, split the proceeds, and move on. This is often easier said than done, however. How much you sell the company for, if you can sell it at all, depends on many factors. Location, industry, competition, and demand all impact the potential dollar amount. Many businesses, especially small businesses, simply don’t sell on the open market.
• Business as Usual: This one is rare, but it does happen. In some cases, couples divorce but continue to run their shared business as usual. Sometimes marriages don’t last, but a business relationship continues to flourish. In amicable splits, this may be a realistic option.

When You Have Other Business Partners

Businesses are often expensive, intricate, and require a great deal of work. As such, they frequently involve multiple partners. Because of this, when one business partner divorces, it impacts all the stakeholders in the company. Any number of things can go wrong.

Divorce has the potential to expose the business to the scrutiny of outside assessors. Since your stake is an asset, likely one of your biggest, the courts can split it up during the division of property.

You may even have to liquidate your share in order to meet other financial obligations in the divorce agreement.

When you have business partners, it’s not only your livelihood on the line, the livelihood of others also hangs in the balance. Protecting your business in the case of divorce also protects your partners.

Related Reading: Ways to Save Money on a Divorce

Protecting Your Business Before You Marry

If you have a pre-existing business, the easiest and most common way to protect it in the case of divorce is with a prenuptial agreement.

Prenups often carry negative connotations in the public’s perception. People view them as betting on a relationship to fail or that you don’t trust the person you’re marrying. However, the reality is very different. They can be important tools to protect yourself and what you’ve built.

In business, you strive for success. You hope for the best but also plan for the worst. The same goes for marriage.

Prenuptial agreements are drafted with the hope they’ll never be needed. But having one in place can make a huge difference. Like a life vest on a boat. Hopefully, you’ll never need it, but you’ll be glad it’s there if you do. Think of it as an insurance policy.

Related Reading: How Is Debt Divided During Divorce?

Key Takeaways:

• Oregon generally views all income as marital funds.
• Major purchases made with these funds will likely be viewed as such.
• If you use outside resources to buy it, it should remain yours.
• If you use shared marital funds, the court may view it as a divisible asset.
• The court does retain the power to use these items to achieve an equitable split.
• Divorce doesn’t negate any loans, contracts, or financial deals you and your spouse entered while married.

The divorce process comes with many expenses. You have court costs, filing fees, an attorney to pay, and even a change in tax status. In many cases, you need to find a new place to live. Perhaps your custody arrangement necessitates buying a new car. As things are ongoing, the question arises: can you make major purchases during a divorce?

If you buy a car during divorce proceedings, can you lose it when you come to the division of property? Does it make you look bad in the eyes of the court?

Like most elements of divorce, you have much to consider before going on a spending spree.

How Do Major Purchases Impact Divorce?

Oregon’s equitable distribution model influences how courts deal with major purchases made during a divorce. Where the money came from colors how they look at and ultimately classify acquisitions.

Using shared funds usually results in that item being treated as marital property. On the other hand, if you use outside resources to make a purchase, it may fall under the separate property umbrella.

Oregon generally views each spouse’s income as marital funds. Major purchases made with these funds will also likely be viewed as such. The courts also retain the power to use these items to achieve an equitable split in the division of property.

Related Reading: How is Property Divided in Divorce?

What If You Make a Big Purchase During Divorce?

There are no specific, hard-and-fast guidelines for splitting assets under Oregon’s equitable distribution laws. The goal is for both parties to emerge on relatively equal footing and maintain a standard of living similar to that during the marriage.

When it comes to a major purchase made during divorce, many factors come into play. A big one is where the money came from.

If you use separate money to buy a car, you’re probably good. However, if you use a shared account or similar funds, the court may view it as an asset to divide.

Spending also influences divorce in other ways. For instance, if you claim you can’t make child support or spousal support payments, but throw around cash with abandon, it reflects poorly on your case.

It’s one thing to buy a safer, more reliable car to drive the kids around or pick up a couch for a new place. But if you buy a jet ski and claim to be broke, that looks bad.

Related Reading: Common Mistakes Men Make in Divorce

What If Your Spouse Makes a Big Purchase?

Making major purchases during a divorce can impact your case. On the other hand, they also affect your spouse’s situation in similar ways.

If your soon-to-be ex argues for spousal support but buys a snowmobile or something impractical, it won’t likely help their cause.

One frequent worry is that the other side will run out and use community funds on big-ticket items. Warring spouses have been known to drain joint accounts. Reckless spending like this can put you in a hole. If you have this concern, there are ways to prevent such behavior.

You should always keep an eye on your finances. Additionally, depending on the circumstances, it’s possible to convince the court to call for a temporary financial restraining order.

This action allows for regular purchases, like gas or groceries. But when it comes to major purchases with shared funds, both parties need to approve.

Related Reading: How Is A Business Divided During A Divorce? Can You Protect It?

Financing Major Purchases

Most major purchases are financed. Cars, houses, furniture, electronics, and the like. At times, it may look like your future ex is on a spending jag, but that’s not always the whole truth.

Whether or not such purchases are game for the division of property varies from one case to the next. Again, if a down payment comes from shared funds, the court will likely account for that.

However, if that down payment originated from a separate source, the court may declare the item in question, and any future payments, belong to the purchaser.

Protecting Yourself

It’s important to know divorce doesn’t negate any loans, contracts, or financial deals you and your spouse entered while married. This fact goes overlooked all too often.

If you and your ex purchase something together and make regular payments, both names stay on the paperwork. Even after divorce. It’s possible to refinance loans and the like, but ending your marriage doesn’t automatically get you out of pre-existing agreements. The original terms remain in place.

This is important because it can impact your financial future and continue to do so for a long time.

Say your spouse winds up responsible for a joint car loan. If your name remains on the records, and any payments get missed, it negatively impacts you. It can ding your credit score and creditors can even come after you.

It’s best to have your ex refinance any loans and remove your name. You may be able to have a provision like this written into the final divorce agreement, even a deadline.

Still, follow-through is another matter entirely. Make sure this happens and be aware of the potential impact if it doesn’t.

Odds are, you’ll have to make at least a few major purchases while handling your divorce. It’s important to understand how these influence the proceedings and know how to reduce the havoc they can cause.

Stay away from impulse buys. Think through all big-ticket items in a calm, logical manner. If you do have to have to make an expensive purchase, don’t hide it, know where the funds come from, and be aware of how it may influence your situation.

Related Reading: Student Loan Debt and Divorce

Key Takeaways:

• The tally of outstanding student loan debt in the U.S. tops $1.8 trillion
• 12.5% of divorces are attributed primarily to student loan debt.
• Student loan debt acquired before marriage usually remains separate property.
• Dividing student loan debt acquired during the marriage varies depending on the types of loans.
• Federal loans generally stick with the borrower, while private loans can get murky.
• If one spouse has substantially more debt, it can influence the divorce settlement as the courts attempt to reach an equitable balance.
• In cases where one spouse helps advance the other’s earning potential, it can affect spousal support.

Financial strain is a huge source of stress for many people, both individuals and couples. One area where we feel the pinch most is student loan debt.

The tally of outstanding student loan debt in the U.S. tops $1.8 trillion—that’s trillion with a “T.” That’s an all-time high, and it gets bigger every year. On average, the amount owed is $34,144, up more than 60% over the last ten years. Over the same period, the number of people owing more than $50,000 tripled.

How Does Student Loan Debt Affect Divorce?

With such astronomical sums at play, it makes sense that this causes people considerable concern during a divorce.

Monthly payments top hundreds of dollars, if not thousands. And that’s often just to stay afloat, not even to pay down the principal.

One recent study uncovers the impact this has on marriage and divorce.

According to the report, “one-third of borrowers said college loans and other money woes contributed to their divorce.”

The study surveyed more than 800 adults and found that 12.5% of divorces are attributed primarily to student loan debt.

Is Student Loan Debt Divided in Divorce?

Not only does student loan debt often place additional strain on relationships and marriages, but it can also contribute to divorce. Depending on the state where you live and when the loans were taken out, they may factor into the settlement.

When it comes to property division, Oregon is an equitable distribution state. This means the courts divide all assets and debts in a manner they deem fair. You must determine if a particular item is marital or separate property. This influences how you split things up.

The definitions are fairly simple on paper. Marital property is generally anything acquired during a marriage. On the other hand, separate property consists of things obtained outside the marriage. This also includes gifts, inheritances, and other items.

Related Reading: How Do Major Purchases Affect Divorce?

Acquiring Student Loan Debt Before Marriage

For the most part, student loan debt acquired before marriage remains separate property.

It doesn’t necessarily become a shared obligation when you tie the knot. Each spouse takes responsibility for their own loans, and things can be relatively simple. You can even draft a prenuptial agreement saying as much.

Situations like making payments from commingled funds change things a bit. If one spouse has substantially more debt, that can also influence the divorce settlement as the courts attempt to reach a reasonable balance.

Acquiring Student Loan Debt During Marriage

Student loan debt in a divorce becomes a bit more problematic when acquired during the marriage.

Things also vary depending on the types of loans. With federal loans, for example, the name on the paperwork matters most. If they’re yours, they generally stick with you.

Private loans usually require a co-signer, which, in the case of married couples, is most often a spouse. This can put both parties on the hook for the money owed.

Related Reading: Dividing Debt in Divorce

Other Factors To Consider

Another thing to consider is who makes the payments. When one spouse goes to school full-time, it’s common that the other takes on the breadwinner role.

If you support your partner and make payments on their student loans, the court may compensate you in the divorce settlement. This doesn’t just include straight monetary support either.

Driving them to school, delaying your own work or educational advancement, or even pitching in more around the house or with raising children all can and often do factor into the settlement.

Generally, student loans stay with the student. But in cases where one spouse helps advance the other’s earning potential, that often plays a part when awarding spousal support.

Related Reading: Whether or Not to Sell Your Home During Divorce

Key Takeaways:

• Oregon uses equitable distribution, as do most states, rather than community property, to divide assets and debts during a divorce.
• Equitable doesn’t mean equal; it aims to divide assets between the parties fairly.
• The goal is for both to maintain a standard of living similar to what they had when they were married.
• Separate or premarital property is excluded and remains with the individual who earned it.
• After assets and debts have been classified as marital or separate property, a value or liability is assigned to each.
• The court then divvies them up between the two parties in the fairest, most egalitarian way possible.

Laws and regulations vary a great deal from state to state, so where you live often has a huge impact on your divorce, especially the division of property.

Though the regions to the north and south of us both take the community property approach, they’re actually in the minority. Only a handful of states—and Alaska by agreement—adhere to community property statutes. The rest practice equitable distribution, and Oregon falls into this category.

How Is Property Divided In Divorce In Equitable Distribution?

In community property states, all assets, property, and debts acquired during a marriage are considered to belong equally to both spouses.

Equitable distribution, on the other hand, views them as belonging to the individual spouse who earned them.

When it comes to divorce, no set rules for the division of property exist. Instead, the court aims to divide assets between both parties in a fair and equitable manner.

The two sides sit down, usually with attorneys, judges, or mediators, to determine the division of property. The ultimate goal is for both to maintain a standard of living similar to what they enjoyed during the marriage.

Related Reading: The Impact of Major Purchases on Divorce

Separate Versus Joint Property

Before getting down to the business of the division of property, it’s important to know that there are two kinds of property: separate property and joint property. Oregon treats both types of assets differently.

Separate /Premarital Property:

As you probably infer from the name, separate property belongs to one spouse or the other. Though usually something owned before marriage, this category also includes gifts or inheritance. The court can include separate property when dividing assets if fairness dictates, but in general, it remains with the owner.

In the case of premarital property, it also usually stays with the original owner. For example, if you bought a car and kept it registered in your name, it will likely remain yours. This gets cloudy in longer-term marriages or in cases where assets commingle. In longer marriages, lives become much more intertwined, and the line between separate and marital property blurs.

Joint /Marital Property:

Property acquired or earned during a marriage generally constitutes marital property.

Despite a name on a title, with equitable distribution, Oregon courts presume both spouses contributed to any assets acquired during the marriage, whether true or not. Property equally acquired is subsequently equally distributed in divorce, in a fair, equitable fashion.

Spouses can work out the division of property on their own. If both sides agree, the court will generally accept it, unless it skews drastically in favor of one party. Even once the courts get involved, you can make a case for ownership.

You can argue that the other spouse didn’t contribute as much to a certain acquisition. Or the two sides can bargain and haggle. For instance, perhaps you’re willing to cede possession of a car in exchange for the title to a boat.

Related Reading: Student Loan Debt And Divorce

What Factors Influence the Division of Property?

The reality of property division varies from case to case. Things often become tricky when it comes to determining what belongs to whom.

Equitable distribution doesn’t mean the court divides all assets in half.

The court attempts to divide the assets fairly. To accomplish this goal, they need a clear picture of who owns what individually and what belongs to the couple as a unit.

The court looks at many factors:

• The number of properties.
• If significant items, such as a house or other property, need to be sold, the court considers the associated costs and expenses.
• This also includes things like taxes and fees.
• Pensions and retirement plans.
• Medical bills.
• If only one spouse works, the court accounts for the other party’s role and contributions as a homemaker.

In many cases, the court subsequently distributes these items or assets in a fitting manner.

During the division of property, however, you can dispute this approach. You can argue your ex didn’t contribute equally to the acquisition, make a case for possession, or barter for ownership.

Once the assets and debts have been classified as either marital or separate property, a value or liability is assigned to each. The court then divvies them up between the two parties in the fairest, most egalitarian way possible.

Anticipated costs also figure into the division of property.

If you have children, the court accounts for their ongoing needs. This includes the ability to pay child support and provide for their care and well-being. For example, the custodial parent may receive the marital home for stability and continuity.

While a number of considerations factor into the process, one that doesn’t, is fault.

Oregon is a no-fault divorce state, so who caused the split doesn’t affect how assets are divided. Individual judges also have their own interpretations and applications of the laws and regulations. As a result, no two divorces ever play out identically.

Related Reading: How Long Does Divorce Take in Oregon?

Dealing With Major Assets, Like A House

Major assets can complicate the property division process, but there are multiple ways to approach this.

Houses offer a prime example.

For most people, a house is the biggest purchase they ever make and their most valuable possession. Because of this, they’re also usually the most significant piece of the puzzle in the divorce settlements.

In these situations, you have three common strategies:

• You sell the home and split the earnings.
• One spouse buys out the other and refinances in their name.
• If there are children, the custodial parent continues to live in the home for a period. Most often, this lasts until the youngest child turns 18 or graduates from high school. At that time, they either buy out the other spouse or sell the house and split the proceeds.

Related Reading: Should You Sell Your Home During Divorce?
Related Reading: How Is Debt Divided?

Key Takeaways:

• Oregon uses the equitable distribution model to divide assets and debts in divorce.
• Equitable distribution does not mean you divide everything equally.
• Debt acquired during the marriage is viewed as the responsibility of both spouses and is subject to division. This includes credit card balances, mortgages, car loans, and more.
• The timing of debt can dictate divisibility. 
• Divorce does not automatically remove your name from any debt. If your name remains on an account, you remain liable for that amount.

When it comes to divorce, one of the first things that comes to mind is a couple splitting up their shared assets. Something people often fail to consider about divorce, however, is that it also divides shared debt.

In Oregon, when it comes to dividing debt in a divorce, the general idea is for both spouses to emerge on a relatively equal footing and be able to enjoy a standard of living similar to what they had during the marriage.

That’s a relatively broad statement, so let’s look into how that manifests in reality.

Dividing Debt in Divorce

When dividing debt and assets, Oregon uses the equitable distribution model.

Equitable distribution is: “A legal principle under which assets and earnings acquired during marriage are divided equitably (fairly) at divorce.”

No matter the name on the title, credit card, mortgage, auto financing, or business loan, Oregon presumes both spouses contributed to the acquisition. It’s then subject to division in a fair and equitable fashion.

If you accrue substantial financial liabilities during a marriage, the court also views them as shared marital obligations. Basically, the law views assets and debts as belonging to both spouses.

Related Reading: How Do Major Purchases Affect Divorce Proceedings?

Does Equitable Distribution Mean Debt is Split Equally?

This question comes up often, and the answer is no.

It’s important to note that equitable distribution does not mean you divide everything equally. Assets and debts may be divided disproportionately depending on the unique factors of your case.

You may wind up with a 40/60 split, but it’s also possible the court will determine a 50/50 division is fair.

Ultimately, the debt division decision takes into account need, earning potential, and other factors. Exceptions to this include things like gifts or inheritances.

Related Reading: How Is Property Divided?

Dividing Debt Acquired During Marriage

Types of debt acquired during marriage include credit card balances, mortgages, auto loans, business loans, and similar obligations, which are then distributed between spouses.

No matter the name on the contract, Oregon presumes both spouses played a part in building that balance. Dividing debt in divorce is then subject to equitable division.

Pre-Marital Debt

While you will likely be on the hook for the debt your ex built up during the marriage, there’s good news when it comes to the pre-existing variety. Timing, however, is the key in this situation.

If your ex rang up thousands of dollars worth of student loans before you tied the knot, that’s not your problem. The same goes for those massive credit card bills that still pop up.

Debt Accrued During A Legal Separation

For debt following a separation, but before a divorce is finalized, the waters muddy a bit.

If the court considers necessities like electric bills and utilities, they may split them.

However, if your ex goes on a lavish ski vacation or buys an expensive new car, that’s a different story altogether.

Unexpected Debt

If you buy a house or condo, finance a boat, or secure a car loan, you expect to deal with these debts. But what about surprises? What if your spouse acquired debt without your knowledge? It happens all the time. How is that divided in a divorce?

Again, from a legal point of view, the court doesn’t generally care whose name appears on the paperwork.

If your ex obtains a credit card behind your back, runs up an astronomical bill, it will still likely be a joint obligation. Generally speaking, if it’s amassed during your marriage, you have to deal with it. At least in part.

As with most areas of divorce, dealing with debt gets twisted in a hurry. In shorter marriages, things may be straightforward, but the longer a union lasts, the more intertwined lives become, and the more complex matters get.

Financial Agreements and Loans

Do creditors have to abide by the divorce decree? No. And this fact can have a serious impact.

In short, divorce doesn’t automatically remove you from any loans, debts, or financial obligations.

If your name remains on a home loan, credit card bill, car loan, or similar contracts, you remain liable for those debts. Even if the divorce agreement gives them to your ex.

So, you go through the process and divide all of your shared debts. Say the court gives your ex the car you financed as a couple, along with the monthly payment. If your ex fails to make those payments, it may come back on you.

Family courts have no jurisdiction to alter agreements with creditors; those stay in place. The divorce settlement can assign debt and require your ex to pay a balance. But that doesn’t take your name off the paperwork.

Part of the divorce decree can include stipulations, such as that your ex must refinance a home loan within a certain period to remove your name. Still, that doesn’t always happen.

It’s important to stay on top of things like that to make sure nothing comes back to bite you. This can impact your credit, among other things. If creditors come after you, you may wind up having to pay off the debt and then sue your ex for restitution.

While people often think of dividing assets in a divorce, splitting up debt sneaks up on many people. It’s important to be aware that this is coming, what to expect, and how to deal with it.

Related Reading: How is a Business Divided During A Divorce? Can You Protect It?