How to Prevent a Family Business from Becoming Marital Property

Published on
October 19, 2022
Written by
Angel Murphy

If you have a family business – i.e., a business started by your parents or other relatives – and you’re planning to get married soon, you’ve probably devoted at least some thought to the possible fate of that business in the event of a divorce in the future. It is only natural because businesses take a lot of time to create, develop and maintain. So business owners (and co-owners) tend to be concerned about how the court will treat their business in a divorce. Fortunately, you can do some things to prevent a family business from becoming classified as “marital property” in Maryland.By preventing this classification, business owners will simultaneously prevent the business from being divided. Basically, keeping your businesses as the separate property will make your spouse never receive any part in a divorce. Let’s discuss the main ways that business owners can make this happen.

Option #1: Create a Prenuptial Agreement

The surest (and simplest) way to ensure that your family business remains a separate property and therefore remains ineligible for division in a hypothetical future divorce is to create an enforceable prenuptial agreement or postnuptial agreement if a prenup isn’t possible. The reason is that this will identify the property you wish to separate, which your spouse will acknowledge and agree. The prenup will allow you to be as specific when delineating the property you wish to keep separate. Basically, a prenup eliminates any uncertainty regarding the fate of your businesses as long as the prenuptial agreement is enforceable.

Option #2: Keep the Business as Separate Property

If you don’t create either a prenuptial or postnuptial agreement, there are still ways to ensure that your family businesses remain separate property. Generally, property acquired during the marriage will be treated as marital property unless you acquired the property via inter vivos gift or inheritance. Also, as a rule, the court will treat anything you acquired before marriage as separate property. However, even separate property can become marital property if it is commingled with marital property to the point where its source is untraceable. Either by directly mixing funds or using marital assets to enhance or supplement the separate property. We can say several things to assist spouses and future spouses as they attempt to preserve their family business. (1) Avoid “purchasing” part or all of the family businesses during the marriage because this could cause problems. If you purchased any interests in the businesses, be sure that the timing of the purchase precedes the marriage. (2) Avoid commingling any funds derived from the family business with marital funds. (3) Don’t use marital funds to invest in the family business. Examples are: don’t renovate an office using marital funds and don’t use marital funds for your business payroll.

Contact the Murphy Law Firm for More Information

We can provide other points about this. But if you follow these basic points, you should be able to preserve family businesses without complications. If you’d like to learn more, reach out to one of the attorneys at The Murphy Law Firm today by calling 240-493-9116.

Angel Murphy

Personable. Passionate. Persistent.

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