Divorce and Business Debt: Who Pays When Florida Entrepreneurs Separate?

When Florida business owners face divorce, the division of marital property can become especially complex. One of the most critical but often overlooked aspects is the treatment of business debt. While couples often focus on splitting business profits and assets, it’s equally important to understand who will be responsible for the business’s liabilities after the marriage ends. Loans, credit lines, vendor obligations, tax liabilities, and even personal guarantees tied to the company can all become points of serious contention.

For entrepreneurs in Palm Beach and Broward Counties, working with a seasoned Boynton Beach business owner’s divorce lawyer can make all the difference in navigating these high-stakes issues.

Florida’s Equitable Distribution Framework and Business Debts

Under Florida law, the division of assets and debts in a divorce is governed by the principle of equitable distribution. According to Fla. Stat. § 61.075, the court must divide marital assets and liabilities fairly, though not necessarily equally. This statute provides a framework for how both property and debt are treated in dissolution proceedings.

In general, business debts incurred during the marriage—regardless of whether one or both spouses are listed on the loan documents—may be considered marital liabilities. This means that even if one spouse primarily operated the business, both parties might bear responsibility for the associated debts, especially if those debts supported the household or were backed by marital assets.

However, not all business-related obligations are automatically subject to division. If the business was established prior to the marriage and has remained separate in operation and funding, the court may deem some debts as non-marital, particularly if they were incurred before the marriage or solely benefit the owning spouse.

Jointly Held Debts and Personal Guarantees

In many small businesses, spouses serve as co-owners, co-signers, or guarantors on credit lines and commercial loans. These jointly held obligations can be particularly burdensome in divorce because creditors are not bound by the divorce decree. Even if the court assigns a particular debt to one spouse, the creditor may still pursue both spouses if they are jointly liable under the terms of the loan.

This is especially true for personal guarantees, which are common when business owners take out loans or leases. A personal guarantee essentially means that the individual, not just the business, is legally responsible for repaying the debt. If both spouses signed a personal guarantee, both may remain liable even after the marriage is dissolved, unless the lender agrees to release one party. Unfortunately, such releases are rarely granted without refinancing or significant renegotiation.

A thoughtful divorce strategy should take this into account. When possible, business debt should be refinanced solely in the name of the responsible spouse or otherwise structured to limit future liability.

Business Valuation and How Debt Affects It

Another layer of complexity is how business debt factors into the overall valuation of the company. A business’s value for divorce purposes is typically calculated by subtracting its liabilities from its assets. In high-conflict divorces, it’s not uncommon for the parties to dispute the legitimacy or amount of debt on the books. One spouse might claim that the other artificially inflated debt or misused company funds to reduce the value of the business.

This is where financial forensics and expert valuation often come into play. A qualified forensic accountant or business valuation expert can help determine which debts are legitimate, trace the purpose of those debts, and assess their impact on the company’s value. This can be particularly important if one spouse will retain the business and needs to buy out the other’s interest.

Debts Incurred After Separation

Florida does not recognize legal separation in the same way some other states do, but the date of filing for divorce, or another legally significant event, can affect whether debts are considered marital. Debts incurred after the filing of the petition for dissolution are generally not subject to equitable distribution unless both parties benefited from them.

In the context of a business, this means that a spouse who continues to operate the company post-separation may bear sole responsibility for any new debt the business takes on, especially if the debt does not benefit the marital estate. However, the court will still consider the totality of the circumstances, including the need to preserve the business as a going concern.

Strategic Approaches to Resolving Business Debt Issues

When it comes to dividing business debt in a Florida divorce, strategy matters. Ideally, the spouses can work together—through negotiation, mediation, or collaborative divorce—to reach an agreement that fairly allocates debt and protects both parties from future financial exposure. This might involve one spouse agreeing to assume all business debt in exchange for retaining the business or offsetting assets such as retirement accounts or real property.

In contested cases, the court will step in to decide based on evidence and argument. However, business debt issues can prolong litigation and drain valuable resources from both the business and the family. Early planning, full disclosure, and legal counsel from an experienced Boynton Beach business owner’s divorce lawyer are key to resolving these issues efficiently and fairly.

Contact Taryn G. Sinatra, P.A.

If you are a business owner facing divorce in Palm Beach or Broward County, the financial and emotional stakes can be incredibly high. At Taryn G. Sinatra, P.A., we understand the unique challenges that entrepreneurs encounter during divorce, particularly when business debt and liabilities are involved. Our legal team is dedicated to protecting your rights, your business, and your future. Whether through strategic negotiation or courtroom advocacy, we are here to help you reach a fair and sustainable outcome.

Contact us today to schedule a confidential consultation with a lawyer who understands the intersection of business and family law.

Sources:

gov/Laws/Statutes/2023/61.075

gov/document/sba-form-148-unconditional-guarantee