In this video, you’ll get answers to these questions:
- What factors determine whether a business should be owned by both spouses?
- Who will be signing documents?
- Does joint ownership affect your tax returns?
- In a divorce, is a business owned by both spouses divided evenly?
- In a divorce, who gets a business owned by one spouse?
- Does it matter if the spouses signed a prenuptial agreement?
Should you own a business with your spouse? You’ll get the answer to that question today, as well as some answers to the questions like, what factors determine whether a business should be owned by both spouses? Who will be signing documents? Does joint ownership affect your tax returns? In a divorce, is a business owned by both spouses divided evenly? In a divorce, who gets a business owned by one spouse, and does it matter if the spouses signed a prenuptial agreement? I’m Aaron Hall, an attorney for business owners and entrepreneurial companies. I create these videos for business owners like you to help you spot issues to discuss with your attorney, to help you avoid legal problem and to generally help you grow a great company. If you haven’t yet received my free cheat sheet, Seven Common Legal Mistakes Made by New Businesses, you can download it free at aaronhall.com/free. Just enter your email address there, and I will email you the cheat sheet plus I’ll send you some occasional educational resources and other quality resources from time to time.
Should you own a business with your spouse? Generally, no. I do not usually recommend that a husband and wife both own the business. And I’ll explain a little bit more as we move on here, but as a general rule, it’s not a good idea. Of course, there are always some exceptions that might be out there, and we’ll talk about some of those exceptions here.
What factors determine whether a business should be owned by both spouses? Again, there are exceptions out there, but one of the big factors I will look at is this: Who will be signing the documents? Will the husband sign the documents? Will the wife sign the documents? Whoever that person is, generally is going to be the president or at least an officer of the company. And often it makes sense to have them be the sole owner of the company. Now, there might be times where the company needs to be owned by a woman so that it’s minority owned and in doing so, you might have an advantage in government contracts. So that’s one example of where perhaps you would have just the woman own the company even if the husband is the one that is generally signing contracts for the company or checks or payroll, things like that. But normally, the person who signs for the company is going to be the best owner of the company.
Does joint ownership affect tax returns? Yes. If you have two owners, then the company generally needs to do a K-1 or a comparable tax return or filing. And as a result, it just creates a little more work to have more than one owner of a company.
In a divorce, is a business owned by both spouses divided evenly? Not necessarily. So, there are two scenarios we can talk about here. Scenario number one, it’s where the company is owned just by the wife, and if the wife then decides to get a divorce, does she get to keep the company in most states? No. It’s divided like any other marital asset, 50-50. So, what do you do about a company that maybe can’t be split evenly, or maybe the partners don’t want to have the company owned by both of them? That might be a problem. If they can’t get along in the marriage, maybe they can’t get along in the company. Well, maybe it gets valued, then one spouse gets it, and the other spouse gets other marital assets of the same value. Think about a piano, for example. If a couple owns a single piano, that piano will get valued at $3,000. The person who plays the piano might say, “I want the piano,” and then the other spouse can get $3,000 worth of some other assets. So, that’s usually how a company is divided. It doesn’t matter in most states and jurisdictions whether the company was owned by one spouse or both spouses, because the general rule is that anything owned during the marriage, whether it’s a piano or a company, is owned by both couples equally. So they need to figure out a way to divide up those marital assets.
Does it matter if the spouses signed a prenuptial agreement? That can be a little tricky. Here’s why. Let’s say, you have a wife who owns a company, and she has her fiancé sign a prenuptial agreement. So, that prenuptial agreement says he will not get anything that she has walking into the marriage, and she has a company. Well, first off if they get divorced right away, or let’s say it’s even a year later, and there is no increase in value in the company. Generally speaking, assuming that a prenuptial agreement is enforced, that company goes right back to the wife and they basically keep what they had going into the relationship. But usually, what happens is the company grows in value. Let’s say they get divorced 20 years later, and now that company has grown from being worth $30,000 to $3,000,000. Does the wife get the whole company? It’s not an easy answer, but in most states the answer is no, to the extent any asset increased in value during the marriage. It is considered a marital asset, which means it’s owned by both spouses. So typically in most states, the wife would get the first $30,000 or whatever the company was worth at the time that she got married. But to the extent the company grew in value, that 50 cents of every dollar is counted towards each of the spouses, or it’s considered the whole dollar is a marital asset. So, that increase in value is part of the marital estate and typically is then divided by a court or by the parties.
So, should you own your own business with your spouse? Usually the answer is no, because it creates extra tax work. There’s virtually no benefit in most circumstances, exceptions might include if the company is minority owned. So usually, I encourage people to just keep it simple. Pick one of the spouses, whoever’s gonna be running the company and have them own it. Now, there may be some other tax considerations, and this is a great area to discuss with a CPA, or an attorney before relying on general educational information like this that you found on YouTube.
If you haven’t received it yet, make sure you get the Seven Legal Mistakes Made by New Businesses available at aaronhall.com/free. If you’d like more educational videos like this, you’re welcome to subscribe to this channel. You can thumbs up if it’s helpful, thumbs down if you want less videos like this, and if you have follow up questions, feel free to leave them in the comments section. I’m happy to review those, and those comments, I often use them to create new video topics in the future. Again, I’m Aaron Hall. You can learn more at aaronhall.com.