So you’ve put your heart and soul into your home business, and it is now thriving after multiple years of struggle into self-sufficient enterprise with growing revenues that invite promising projections. Yet, as happens to so many of us, just when one part of your life is thriving, another part gives way. I, of course, speak of getting divorced.
Just because your marriage has come to a premature end and you’re getting divorced, does not mean that you want to blow up your whole life—if fact, after your children, I imagine that home business you invested so much time and energy into is your biggest concern.
I am going to make an assumption that most of the folks reading this article started their home business after entering into a marriage. If this happens to not describe your situation (like you inherited a business from your family that has been passed down for generations), these ideas do not apply in the same manner.
Further, practicing divorce law here in the thriving metropolis that is Las Vegas, my analysis will be done through the prism of Nevada law. Note: if you live in another state, said state may have different divorce statutes from which this analysis would not apply.
Your Home Business is Community Property—Just Like Your Other Assets
Bottom line: if you live in a community property state (like my home of Nevada, but also a couple of jurisdictions you might have heard of including California and Texas), a home business initiated after your marriage is, by most accounts, community property.
The standard community property rule is that each spouse is entitled to 50% of the assets the couple earned during the marriage. Even if the parties agreed to a premarital agreement, this allocation of assets is subject to a number of statutory regulations (See NRS Chapter 123A) that ensure that one spouse is not taken advantage of by the other.
You may have heard of a postnup, which is a contract spouses enter into to arrange their business affairs after marriage. In states like Nevada that do not have specific statutes to address postnups (separation agreements are listed in NRS Chapter 123.080), one must presume that the laws that regulate prenuptial agreements will also apply to postnups.
Specifically, the law permits a judge to void an agreement if it was “unconscionable when it was executed.” NRS 123A.080(1)(b). I will save you the deep-dive into the legalese of what ‘unconscionable’ can mean; you just need to know that if a judge looks at your postnup agreement and thinks it is unjust, s/he likely has the statutory authority to void the deal.
This is the disaster scenario—with a judicially voided agreement, you are back at square one and your home business is no more secure. Is there a better way?
Good Faith Will Set Your Home Business Free
In divorce actions, all participants would prefer a scenario where the one spouse dictates the separation terms. Yet, in most cases, this just isn’t feasible. Particularly if you are concerned about the home business you worked so hard to build, animosity toward a divorcing spouse should be avoided at all costs.
As a general rule, judges are more inclined to review contracts relating to divorce as the law and the Professional Rules expressly ask them to do so as legislators want protection for spouses in the relationships with unequal power structures.
Further, even in equal relationships, the law assigns a fiduciary duty from each spouse to the other requiring that any and all material information be shared before a postnup agreement may be reached. That means any sort of bad faith demonstrated in the creation of a postnup could lead to legal liability.
I know your home business isn’t the size of Amazon (yet—though I believe Mr. Bezos started his company selling books out of his garage), but this same idea of good faith applies. As we discussed, there are many a legal avenue a displeased spouse could use to affect the other’s home business.
A postnup will only be as binding as any other prenuptial agreement—meaning that an objective judge will need to be able to look at the resulting arrangement and believe that it is fair and is conscionable.
What is considered conscionable by a judge will depend upon the couple’s assets/dependents, among other factors. If you both are completely dependent upon your home business as a means of living, you may need to work out an equity arrangement like the Bezos. On the other hand, if your family has other independent means of wealth, the home business could just be one part of the many assets that the couple splits as community property.
It is in each party’s interest that the home business to continue to earn the most that it can, even beyond the scope of alimony and child support. The best means of reaching this optimization is for decoupling parties to work together to ensure the home business can continue to thrive while the other spouse feels that s/he has been adequately compensated for his/her share of the community property.
Stacy Rocheleau has practiced divorce law for 18 years, helping clients with uncontested divorces, legal separations, and contested divorces. Among her accolades, Ms. Rocheleau was elected the best divorce attorney in her home State of Nevada for 2017 & 2018. https://rightlawyers.com