A Sole Proprietorship and Divorce

Divorce is rarely easy for couples, but it's also rough on business. If you're a sole proprietor, your business may be just one more marital asset in the eyes of the divorce court. Unlike a corporation, the business assets belong to you, not a separate company, so you may lose some or all of them to your spouse.

Community Property

  1. If you live in a community-property state, your wife has a half-claim on the business if you started it after the marriage. If you began it before the marriage, the business is yours, but assets you bought after tying the knot are probably community property. On top of that, if your spouse contributed any money to the company, he may be entitled to get that reimbursed. In common-law states, your spouse is entitled to an equitable share of your assets, but not necessarily a 50 percent cut.


  1. In any state, the court needs to know what marital assets are worth before it divides them up. A successful small business is worth more than the physical assets, which makes it tough to set a value. If you're moving money into and out of your business and personal accounts, your spouse may suspect you're playing shell games to hide some of what she's entitled to. If you don't have a bookkeeper already, hire one. He can keep your accounts clean and comprehensible -- and he'll have to explain them to the court, instead of you.


  1. If your spouse put some sweat equity into helping you build the business, that may give him a claim even if the company is entirely separate property. Exes who work for their spouse's sole proprietorship have argued that they weren't compensated for their time, effort and ability the way an employee or partner would have been. In some cases judges have agreed, and added their compensation to their share of the marital pot.


  1. It may take a professional appraiser to determine what your business is really worth. The appraiser -- a certified appraiser or a CPA -- will go over several years of business records to figure out your net and intangible assets, and calculate your earnings. She also values the goodwill attached to your business. Some states, such as Texas, don't divide up the personal goodwill -- the part that stems from you as an individual -- the way they do the business goodwill. Once the business is valued, the division is up to the divorce court.