Nevada Divorce: Classifying Retained Earnings of a Premarital Business

In a Nevada divorce, retained earnings of a premarital business are separate property. A business that a spouse owned before marriage is classified as separate property and the income received from the property is also considered the separate property of the spouse. Several circumstances exist that can make separate property become community property.

Understanding Separate and Community Property in Nevada

In Nevada, a community property state, property is classified as community property if it was acquired or earned during the marriage. Spouses own all community property equally. In a divorce, the court will distribute the debts and assets considered community property equally.

Property owned by one of the spouses before the marriage is separate property and remains separate over the course of the marriage. Any income from the property and increase in value is also that spouse’s separate property. Such property is not subjected to distribution in a divorce.

Retained earnings are the accumulated part of a company’s profits that are often used to pay off debt obligations or for reinvestment into the business. A premarital business is classified as separate property. As a result, the retained earnings of a premarital business are considered separate property. They are not divided between the spouses during divorce. Nevertheless, they can be factored into child support payments and paying for the debts incurred during the marriage.

In Nevada, the debts that spouses incur during their marriage are classified as community debts. Therefore, each spouse will be equally responsible for paying the debts. If the community property is not enough to pay them, the debtor can seize separate property.

When Separate Property Becomes Community Property

If a spouse contends that retained earnings are separate, the burden of proof will be on him or her. Separate property can turn into community property in Nevada if the two types of property commingle.

For example, although money obtained from separate property and kept in an account in the owner’s name is separate, it can become community property if the owner deposits it into a joint account. The only way that the money will not become community property is if there is a written document or agreement acknowledging the funds are separate property or there exists a way that the funds that are considered separate and those that are community property can be traced.

Business valuation in divorce can prove to be a complicated issue. An experienced attorney can be of great value when navigating this and other issues associated with divorce.

Kimberly Surratt served for eight years on the executive council and has been the vice chair and then chair of the State Bar of Nevada Family Law Section. In addition, she is the President-Elect of the Nevada Justice Association and the chair of the domestic lobbying committee. She has lobbied with the Nevada Justice Association since 2004.

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