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What Happens to Inherited Business Interests During Divorce?

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Divorce involves the splitting of assets. Assets are generally broken down into one of two categories: marital or nonmarital, also referred to as separate. Marital assets are subject to split while assets that are deemed separate remain the property of the owning spouse.

Keeping assets separate can be difficult. As such, each separate asset generally needs evidence to support the contention that it is, in fact, separate and not subject to division during divorce.

This piece delves into the issue of business interests – specifically focusing on those that are given to a spouse by way of inheritance.

How can I ensure my business interest qualifies as an inheritance? The classification as an inheritance is important because inheritance is generally deemed separate property. In most cases, as noted in a recent piece by The Legal Intelligence, the spouse claiming that the business interest was an inheritance bears the burden of proof. This means this spouse must establish that the interest was an inheritance.

What can I do to keep my business interest as separate property? The most important step to help better ensure that this interest qualifies as separate property is to keep it separate.

That may sound like simple and obvious advice, but the reality can be a bit more complicated. Three tips to help better ensure that separation is clear include:

  • The power of a name. Make sure the business interest is clearly in one spouse’s name. Make sure that the named owner is not vague.
  • Keep copies of original documentation. Keep a copy of the document that resulted in the transfer of the business asset. In the case of an inheritance, this generally means keeping a copy of the Will that resulted in the transfer.
  • Full separation. Keep the original asset separate. Set up an account under the owning spouse’s name to avoid mingling this asset with marital property. In addition to keeping the original interest itself separate, it is often wise in many cases to keep income derived from this interest separate as well.

These steps can help to establish that the business interest is nonmarital property, better ensuring that it does not become subject to division during divorce.

It is important to note that business interests are just one of the many legal issues that you may encounter when going through a divorce. As such, it is wise to contact a property division attorney to help better ensure that your interests are protected.

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