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Does Your Spouse Share Your Business Debt in Divorce?The division of properties and debts is one of the main tasks when making a divorce agreement. You may know that a business that one of you owns can be marital property if it was started during your marriage, increased in value during your marriage, or mingled with your personal assets. When a business is a marital property, does that mean that the business’s debts are also marital debts? There are situations in which a business debt could be divided between spouses in a divorce:

  1. Your Spouse Cosigned on a Loan: Your spouse clearly shares liability for a business loan if they agreed to do so by cosigning the loan agreement. Your spouse may cosign if they are a partner in your business or if you need to back the loan with your personal finances in order to qualify. As long as your spouse’s name is on the loan contract, the lender will consider them liable for the debt, regardless of whether you decide to divorce.
  2. Your Business Does Not Have Limited Liability: The sole proprietor or general partner of a business is personally liable for their business’s debts unless they form the business into a corporation or limited liability company (LLC). Business debts that you are personally liable for will qualify as marital debts in a divorce. You may be expected to take responsibility for paying your business’s debt, but it will be included when calculating how to fairly divide all of your marital debts.
  3. You Used Your Business to Receive a Loan for Personal Expenses: A business owner may use their marital assets as collateral to get a business loan. The reverse can also work if you use business assets as collateral for a loan that is meant for personal expenses. For instance, you could use real estate that your business owns as collateral in order to receive a loan to pay for a home renovation project. Though the loan may appear to be a business debt, you can argue that your spouse should share responsibility for paying it because the loan was invested into a marital property.

Contact a DuPage County Divorce Attorney

Whenever you mix business and personal finances, it is important to keep track of where assets came from and how they are used. Otherwise, your spouse can claim ownership rights to business assets or avoid liability for shared debts. A Naperville, Illinois, divorce lawyer at Calabrese Associates, P.C., will work with you to protect your business interests. Schedule a consultation by calling 630-393-3111.

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How Your Divorce May Affect Your BusinessGoing through a divorce can be perilous for your business, particularly if it is a smaller, family-run business. Some owners have seen the value of their business drop or lost control of it because of the consequences of the divorce process. It is important to work with your divorce attorney on protecting your business during the divorce and allowing it to thrive afterward.

Marital Property

You may need to fight for ownership of your business during your divorce negotiations. Your business is marital property if you created it during your marriage or used marital assets to invest in it. A business that predates your marriage can be nonmarital property, though the amount that the business increased in value during your marriage can be a marital asset. You have several options when your business is part of the equitable division of property. You can:

  • Have complete ownership of the business in exchange for other marital assets of equitable value;
  • Co-own the business with your former spouse after the divorce;
  • Split your business into two companies that you own separately; or
  • Sell your business and divide the proceeds.

The option you choose may depend on the size of your business and how involved your spouse is in it. Your spouse may be content to let you keep the business if he or she is not part of it. A spouse who helped create and run the business may be unwilling to give up his or her business ownership without ample compensation. However, co-owning or dividing a small business may be impractical, and selling your business means losing your source of income.

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