Division of Business Interests in a Divorce

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HOW BUSINESS INTERESTS ARE DIVIDED IN A DIVORCE UNDER UTAH LAW

It is not uncommon for a husband and wife to create a business together during their marriage. This creates an interest in the business for both the husband and wife.

A business interest is any interest paid or accrued on indebtedness properly allocable to a trade or a business.¹Legal Information Institute, Business Interest, https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=26-USC-907772022-1977785381&term_occur=999&term_src=title:26:subtitle:A:chapter:1:subchapter:B:part:VI:section:163 (last visited May 2, 2023)

Pursuant to Utah Code §30-3-5(2), when a divorce decree is rendered, the court may include in the decree of divorce equitable orders related to the children of the parties, the properties of the parties, the debts and obligations of the parties, and the parties themselves.

In a divorce proceeding, each party is presumed to be entitled to all of his or her separate property and an equitable portion of the marital property.²See Bradford v. Bradford, 1999 UT App 373, 26, 993 P .2d 887

Utah law requires an equitable division of marital property; “equitable” means fair, which is not necessarily equal.³Utah Courts, Property Division, https://www.utcourts.gov/en/self-help/case-categories/family/divorce/property.html (last visited May 2, 2023)

Utah courts use several deciding factors regarding what a fair distribution of property is, including, but not limited to, how long the marriage lasted, the age and health of the parties, the parties’ occupations, the amounts and sources of income for each party, and other related matters.⁴Id.

Utah case law has determined exceptions for the division of non-marital and marital property. These exceptions include whether the property has been commingled or whether the other spouse has, by their efforts, augmented, maintained, or protected the separate property, and whether the distribution would achieve a fair, just, and equitable outcome.⁵See Noble v. Noble, 761 P .2d 1369, 1373 (Utah 1988); see, also, Dunn v. Dunn, 802 P .2d 1314, 1320 (Utah Ct.App.1990)

If a person owns a business before their marriage, said business can potentially be considered a non-marital asset. However, if the value of the business grew or appreciated during the time of the marriage, it can be considered a marital asset.⁶See Elman v. Elman, 45 P .3d 176 (Utah Ct.App.2002)

The intertwining of personal and professional lives when a couple creates a business together during their marriage, highlights the multifaceted nature of marital property division in divorce proceedings.

The equitable distribution of business interests in a divorce, as required by Utah law, serves as a reminder that businesses are more than just assets; they represent the culmination of both spouses’ efforts, sacrifices, and aspirations.

It is essential to acknowledge that dividing business interests in a divorce is not merely a financial transaction but an intricate process that considers the emotional and practical aspects of the parties involved.

In this context, the concept of equitable distribution transcends the simple notion of fairness in property division, extending to a broader understanding of justice and the acknowledgment of the spouses’ intertwined lives and efforts.

Furthermore, the aforementioned exceptions determined by Utah case law underline the importance of recognizing the nuances and unique circumstances of each divorce case involving business interests.

The division of marital and non-marital property is not a one-size-fits-all approach. Instead, it demands a careful examination of the parties’ efforts in augmenting, maintaining, or protecting the business, as well as the potential consequences of the division on the parties’ lives and the business’s future.

In light of these complexities, divorcing couples with business interests should not only rely on legal guidance but also consider seeking the support of financial advisors, mediators, or other professionals who can provide valuable input on the practical implications of property division. By doing so, the divorcing parties can strive for a well-rounded and informed resolution that respects both the financial and emotional investments of both parties and ensures the long-term viability of the business.

CONSIDERATIONS

What If the Spouse Was Not Involved in the Business at All?

Even if one of the individuals in a marriage was not involved at all in the business during the marriage, the court will still likely divide the business as a marital asset. But why? As long as both spouses were engaged in a “joint effort” towards the marriage, and the ownership interests of the spouse were acquired after the date of the marriage, a business would likely be subject to equitable distribution.⁷See Savage v. Savage, 658 P .2d 1201, 1204 (Utah 1983)

These sorts of “joint efforts” can include domestic household duties (childcare, cleaning, grocery shopping) that support the other spouse who was running the business.

If the spouse actually performed any work within the business, such as bookkeeping, cleaning, or answering phones, then the business would almost certainly be determined to be a marital asset and subject to equitable distribution.⁸See Lee v. Lee, 744 P .2d 1378 (1987)

What If There is a Premarital Agreement?

A premarital agreement is an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage.⁹See Utah Code § 30-8-2(1).

A valid premarital agreement can have an impact on the division of property during divorce, including any business owned by one spouse before the marriage. However, a premarital agreement cannot have any stipulations on child support, children’s healthcare insurance or expenses, or childcare expenses.

It is hard to know exactly how a court will rule if an individual owns a business, whether before marriage or during marriage. The parties should keep strict financial records of the business and any records of how the business operates. This will make it easier for the court to determine if the business should be considered a marital asset or a non-marital asset and how the interest in the business should be divided, if at all, during a divorce.

Other Considerations

The consideration of a spouse’s involvement or lack thereof in the business during a marriage emphasizes the intricate nature of equitable distribution in divorce cases. It highlights that marriage is a partnership where each spouse’s contributions, whether directly related to the business or not, are essential in fostering an environment for the business to thrive.

This recognition challenges traditional notions of value and ownership, as it acknowledges the indirect support and sacrifices spouses make in enabling the success of the business.

The role of premarital agreements in influencing the division of property during a divorce underscores the importance of proactive communication and planning in marriage.

Premarital agreements are a reminder that open and transparent discussions about finances and business interests before marriage can potentially mitigate complications and conflicts in the event of a divorce.

Couples should view premarital agreements as an opportunity to establish mutual understanding and expectations rather than merely a safeguard against future disputes.

Moreover, the uncertainty surrounding how a court will rule in cases involving businesses owned before or during a marriage demonstrates the dynamic nature of the legal landscape.

The emphasis on maintaining strict financial records and documentation of business operations highlights the significance of thorough preparation in navigating the complexities of property division in divorce cases. By doing so, couples can better equip themselves to present a well-organized case that accurately reflects the nuances of their situation.

In conclusion to this section, the various considerations related to the division of business interests in a divorce serve as an important reminder of the interconnectedness of personal and professional lives within a marriage.

Couples should approach these considerations with empathy, foresight, and open communication, ensuring that their decisions not only reflect the legal and financial aspects of property division but also recognize the emotional and personal contributions made by both parties.

CONCLUSION

In conclusion, the division of business interests in a divorce under Utah law is a complex and multifaceted process that involves examining various factors and considering the interconnected personal and professional contributions of both spouses.

The equitable distribution of marital property extends beyond financial considerations, recognizing the emotional and practical aspects of the parties involved.

The division of business interests in a divorce under Utah law serves as a testament to the importance of addressing not only the tangible financial aspects of a marriage but also the intangible contributions and sacrifices made by both parties.

The equitable distribution of business interests in a divorce emphasizes the need for a holistic approach, taking into account the diverse dimensions that constitute a marriage, such as emotional support, shared responsibilities, and long-term aspirations.

Utah courts navigate the intricacies of dividing marital and non-marital property by carefully analyzing each couple’s unique circumstances, applying established exceptions, and emphasizing the importance of thorough documentation.

Different considerations, such as a spouse’s involvement in the business, the existence of a premarital agreement, and the need for maintaining accurate records, underline the interconnected nature of personal and professional lives within a marriage, emphasizing the need for open communication, empathy, and proactive planning.

The primary objective of the court is to achieve a fair, just, and equitable outcome for both parties regarding the allocation of business interests. This includes considering the nature of the business, the involvement of each spouse, the duration of the marriage, and the financial and non-financial contributions made by both parties.

Divorcing couples with business interests should approach the process with a comprehensive understanding of the legal, financial, emotional, and practical aspects involved.

By seeking support from legal professionals, financial advisors, mediators, or other experts, couples can strive for a well-rounded, informed resolution that respects the investments made by both parties and ensures the continued viability of the business.

In essence, the division of business interests in a divorce under Utah law is a complex process that reflects the intricate and nuanced reality of modern relationships, emphasizing the need for a compassionate and comprehensive approach to resolving disputes and ensuring the well-being and fair treatment of all the parties involved.