Going through a divorce is challenging, especially when you own a business. Business debt can complicate the process, and understanding how you’ll handle it can make a difference in your settlement. If your business has debts, it’s important to know how those liabilities will divide and how they affect your divorce.
Determining marital vs. separate debt
The first step in dividing business debt is figuring out whether it’s marital or separate debt. Marital debt includes any debt you and your spouse took on during the marriage, no matter whose name is on the loan. If you incurred debt to support or expand the business during the marriage, both spouses could share responsibility for it. Separate debt refers to any debt one spouse took on before the marriage or after the separation.
What happens to business debt during divorce?
When dividing business debt, the court will consider both spouses’ involvement in the business. If both spouses helped build the business or took on debt together, the court will divide the debt accordingly. If one spouse controlled the business or assumed more of the financial responsibilities, the court might adjust the division to reflect this.
In some cases, the court might direct the debt to be paid off from business assets, or one spouse may take on more of the debt in exchange for other assets in the settlement. The court might also allow refinancing the business debt, especially if one spouse is in a better position to manage it.
How business debt affects the divorce settlement
Business debt can lower the value of the business, which might change how other assets, like property or savings, divide. One spouse might choose to buy out the other’s share of the business to avoid dealing with the debt together. This decision could shift the overall divorce settlement.
Business debt can make the divorce process more complicated, but understanding how to divide it helps you prepare. By determining whether the debt is marital or separate, and deciding how to allocate it, both spouses can reach a fair arrangement.