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How Are Assets Divided During a Divorce?
During a divorce, the State of Kansas uses the equitable distribution rule to divide assets between both spouses. Equitable distribution means that assets are divided equally, but not necessarily 50/50. Only marital property is subject to equitable distribution, and it is considered to be all tangible and monetary assets acquired during the marriage. Separate property, or property that was owned by either party prior to marriage, usually stays with its original owner.
What are Examples of Marital and Separate Property?
Examples of marital property include but are not limited to:
- Income earned by either party during the marriage
- Homes, vacation properties, rentals, or other real estate acquired during the marriage
- Retirement accounts or pensions funded during the marriage
- Vehicles, furniture, art, or other tangible items purchased during the marriage
- Investments and business ventures developed during the marriage
Examples of separate property may include but are not limited to:
- Property owned by one party before the marriage
- Inheritances received by one party, even if received during the marriage
- Gifts given to one party
- Personal injury awards received by one party
- Assets documented as non-marital in a prenuptial or postnuptial agreement
The distinction between marital and non-marital property may become blurred, classifying the property as commingled. An example of commingled property would be if a home that was owned by one party prior to marriage becomes the family home, and both parties use marriage funds and time to maintain the home.
What Factors Determine How Property is Divided?
In the absence of a prenuptial or postnuptial agreement, a couple may draft their own settlement agreement. If it is fair to both parties, a judge is likely to approve of it.
Otherwise, a judge may decide on equitable division by:
- Awarding assets according to ownership or use
- Awarding one party property and the other a sum of equal monetary value
- Ordering that property be sold and the profits divided
A judge may consider the following factors when dividing assets:
- The length of the marriage
- The age and health of both parties
- Both parties’ present and future earning capacity
- The effect of debt division and tax consequences for both parties
- Other legal issues, such as child support and spousal support
Kansas is a no-fault divorce state, meaning that fault by either party does not have to be proven for a divorce decree. However, a judge may consider marital waste or contribution to the demise of the marriage during property division. For example, if marital funds were used for an extramarital affair, the judge may compensate the innocent party by using the property of the guilty party.
How Does a Prenuptial or Postnuptial Agreement Offer Protection During Divorce?
The best way to protect business assets is through a prenuptial or postnuptial agreement. These agreements are contracts signed either before or during the marriage that include how property is to be divided in the event of a divorce. Additionally, these agreements may include:
- Each party’s rights and obligations regarding joint and separate property
- Each party’s ability to buy, sell, use, transfer, or control property
- What happens to assets upon separation, divorce, death of either party, or other event
- Whether alimony will be paid to either spouse and the amount
For a prenuptial or postnuptial agreement to be legally enforceable, it must be in writing and signed by both parties. Both parties must be of legal age and possess the mental capacity to understand and create the contract.
While it is not necessary to hire a lawyer to create this contract, it is a good idea to review the document with an attorney to ensure it is fair.
The agreement should list each party’s assets and debts. While disclosure of these items is not mandatory, a judge may invalidate the agreement if the parties fail to disclose their full financial status truthfully.
What is a Business Valuation?
When a business is considered a marital asset that is to be divided, the Fair Market Value of a party’s business or party’s shares of a business must be determined. A business valuation compares the business’s assets and liabilities, including real and personal property owned by the business, all cash, accounts receivable, equipment, supplies, and other tangible assets.
A business’s goodwill may even be valued as an asset, especially in professional practices. The goodwill value is included in the overall valuation to the extent that the business is saleable.
A detailed forensic evaluation may be required to determine the true value and income. When this occurs, the value of the business will be determined by reviewing profitability, tracing cash streams, determining ownership interests, valuing investments, valuing stock held in trust, identifying deferred compensation or retained profits, and identifying and capturing passive earnings.
Once the business or business share has been valued, the asset will be divided. Some options for dividing or maintaining the business include:
- Buy-out: One party may buy the shares from the other party
- Sale: The business can be sold, and the proceeds divided between both parties
- Paycheck: If only one party wishes to maintain the business, the other party may be given a salary or paycheck as compensation
- Co-ownership: Both parties may choose to continue co-ownership of the business
How Can Assets be Protected Before a Divorce?
It is important not to wait until a divorce is in progress to decide how business assets will be handled. Precautionary measures to protect assets include:
- Prenuptial or postnuptial agreements
- Operating agreements
- Limitations on the involvement of a spouse
- Salary arrangements
Do You Need an Attorney?
If you are a business owner facing divorce, you need immediate legal help from whom you can depend. Call Barnds Law LLC today at 913-514-0909 or fill out a contact form to schedule your strategy session.
