Divorce proceedings can become more complex if they involve business interests and debts. For example, property division includes not only assets but debts, too.
Business debts incurred during the marriage are usually marital debts and are subject to division.
Identification of business debts
In Kentucky, marital assets and debts are typically subject to equitable distribution during divorce proceedings. Equitable distribution means that assets and debts acquired during the marriage are divided fairly, but not necessarily equally, between the spouses.
During divorce proceedings, it is necessary to identify all business debts accurately. This includes loans, lines of credit and any other liabilities associated with the business. Documentation of these debts, such as financial statements and loan agreements, is necessary for equitable distribution.
Evaluation of business debt
The court evaluates various factors when determining how to divide business debts. These factors may include the contribution of each spouse to the acquisition of the debt, the purpose of the debt and the financial circumstances of each party. Additionally, the court considers whether the debt primarily benefits the business or the marital estate.
Impact on property division
About 364,200 small businesses operate in Kentucky, and business debts can affect the division of marital property in a divorce. If one spouse assumes responsibility for a significant portion of the business debt, they may receive a larger share of the marital assets to offset the liability. Alternatively, the court may order the sale of business assets to satisfy outstanding debts.
Protection of individual assets
In some cases, spouses may seek to protect their individual assets from satisfying business debts. Prenuptial or postnuptial agreements that address the division of assets and debts can provide clarity and protection in the event of divorce.
Understanding the evaluation and division of business debts is important for spouses seeking to navigate the dissolution of their marriage while protecting their financial interests.