Divorce can be a challenging time for anyone, and for business owners, the process can be particularly complicated. If you own a business in New Mexico, it is essential to understand how a divorce could impact your company. In this post, we will explore how a person’s New Mexico business can be affected during a divorce in a community property state.
First, it is important to understand that New Mexico is a community property state. This means that in a divorce, any property acquired during the marriage is considered to be owned equally by both spouses, regardless of who actually paid for it. This includes businesses, which are considered marital property if they were started or acquired during the marriage. As a result, the business could be subject to division in the divorce settlement.
The division of a business in a divorce can be a complicated process. The first step is usually to determine the value of the business. This can be done through a business valuation, which takes into account factors such as assets, liabilities, and revenue. Once the value is determined, the court will decide how to divide it between the spouses. This could involve one spouse buying out the other’s share, or the business may be sold and the proceeds divided.
It is worth noting that in some cases, a business owner may be able to protect their business from division in a divorce. This can be done through a prenuptial or postnuptial agreement that specifically addresses the business. Additionally, if the business was started or acquired before the marriage, it may be considered separate property and not subject to division. However, if marital funds were used to support the business, it could still be subject to division.
In addition, stock restriction agreements and spousal consent agreements can be useful tools in minimizing the risk of a business being divided in a divorce. These agreements can provide a predictable formula for determining the value of the business, as well as restrictions on how the shares of the business can be transferred or sold.
A stock restriction agreement typically limits the ability of shareholders to transfer their shares without the consent of the other shareholders or the company itself. These agreements can also require that any transfer of shares be made at a fair market value, which can help to ensure that the value of the business is accurately reflected in the division of assets during a divorce.
Similarly, a spousal consent agreement requires that the non-owner spouse agrees to any transfer of shares, which can prevent the business from being sold or transferred without both parties’ consent. This agreement can also provide a formula for determining the value of the shares, which can help to simplify the division of assets during a divorce.
In short, both stock restriction agreements and spousal consent agreements can be useful tools for business owners to protect their interests and minimize the risk of their business being divided in a divorce. By working with an experienced attorney to create these agreements, business owners can take proactive steps to protect their businesses and ensure a smooth transition through a divorce.
Finally, it is important to remember that a divorce can be a lengthy and costly process. For business owners, this can have a significant impact on the day-to-day operations of the company. It is essential to work with an experienced divorce attorney who can help you navigate the legal process and protect your business interests.
In conclusion, a divorce can have a significant impact on a person’s New Mexico business, particularly in a community property state. If you are a business owner going through a divorce, it is important to understand your rights and work with an experienced attorney to protect your interests. With the right legal guidance, you can navigate the process and emerge with your business intact.
Jennifer M. deGraauw, Owner/Partner of Terry & deGraauw, P.C., May 2023
