Corporate stocks and other assets of closely held corporations are often the subject of dispute in a divorce, especially if the corporation provided most of the income for the family. Many states have laws dealing with the distribution of interests in closely held corporations in a divorce. Courts also consider other factors in deciding how to distribute these assets.

State Laws

Some states have laws that tell the courts how to treat closely held corporations in a divorce. For example,

  • Florida, New York and North Carolina direct the court to consider the need to allow one spouse to retain an interest in a business free from any claim or interference by the other party.
  • West Virginia law directs the court to give preference to the retention of ownership interests, and to award the larger ownership interest to the party having the closer involvement in the operation of the business, or to the party having the greater dependency on the business for income needed to meet support obligations.

Factors to Consider

In determining how to dispose of a closely held business, the court first considers whether one or both spouses have contributed to the success of the business. For example, if a closely held corporation grew without any contribution from the husband, the wife may be awarded the husband's one-half share of the corporation.

Courts may leave the spouses as joint owners of a family business where both spouses worked in the business and most of the funds used to establish and operate the business came from joint assets.

Spouses who try to keep a closely held business but protest a cash award to the other spouse often end up with co-ownership. If the spouse seeking to keep the business claims that the stock is worthless or that he or she cannot afford to buy the other spouse out, the court can divide the stock in kind.

Divisions in kind also can occur if:

  • The stock is for a public corporation and ownership is not necessary for the spouse's position with the corporation
  • One of the spouses helped run the business without compensation during the marriage

If the court makes a joint award of business assets or closely held corporate stock, the court often provides one or both spouses with an option to buy the assets or stock if the other spouse decides to sell them.

No Joint Ownership

Joint ownership is inappropriate in many cases. If joint ownership will have an adverse affect on the management of a closely held corporation, all of the stock may be awarded to one spouse. The other spouse should be awarded a sufficient share of the marital assets to offset the award of the business to the other spouse.

If one spouse's participation in the business is critical to the success of the business and that spouse would refuse to participate in the business if it was jointly owned by the spouses after marriage, joint ownership is not feasible. One spouse may be awarded the business, and the other spouse should receive a cash award.

Payment Orders

Finally, if the corporation has not been used to defraud the other spouse or for some other improper purpose, the court may not direct that payments be made from the corporation, rather than personal income, since the corporation is not a party to the divorce action.

Questions for Your Attorney

  • If I own a small business and my spouse did not contribute to the business during the marriage, can the business be awarded solely to me?
  • What happens if the stock in my business has no market value and I cannot afford to buy out my spouse?
  • Will I be awarded some of the stock of our closely held corporation if my spouse is critical to the success of the business and he or she refuses to participate in the business after our divorce if I am awarded stock?