June 15, 2022
Going through a divorce challenges many people, promting high emotions and fears for the future in both partners.
During this proceeding, the most important thing is to protect yourself with a divorce lawyer representing your interests. Business owners contemplating divorce or who have already received divorce papers are likely worried about what will happen to their business.
You’ve probably spent a lot of time, energy, and money building up your business, and if it’s your livelihood, you don’t want to lose your income or have all of your hard work taken away. Or perhaps you started the business together, but after the divorce, you probably don’t want your former spouse as your business partner.
One of the common questions people ask our legal team divorce lawyer is whether they will lose their business in a divorce and what steps they can take to protect it.
How a Divorce Can Affect Your Business?
Going through a divorce can put you in an uncomfortable position. You could partner with your ex, or you may have to give up half of your business if you live in a community property state. If you live in an equitable division state, you still may have to give up substantial interest in your business.
However, your divorce attorney can help you take steps to protect your business as you split assets with your spouse.
One situation that your divorce lawyer may guide you towards is to divide other assets equitably instead of giving up half of your business. For example, if you own a vacation home, cars, or have stocks and investments, you may be able to give your ex a greater share of those instead of interest in your business.
This option may help keep the business you’ve worked so hard to grow under your control.
Another possible way of splitting a business in a divorce is to liquidate the business, and you and your ex will split the proceeds.
However, your divorce attorney may advise you against this, especially if the company provided the primary means of support for your family. If you sell your business, both of you could be unemployed. However, in some cases, this may be the only solution for a judge or divorce mediator.
One other concern that business owners have during a divorce is whether their ex-spouse would sabotage the business by bad-mouthing it around town or online or harassing your customers. Your divorce lawyer can also help you put a plan in place for this.
How a Divorce Can Cost a Business Owner Their Business?
Your spouse, or their divorce attorney, may hire a forensic accountant to review your business records to find how much it’s truly worth. If you started the business before you married, the divorce might not impact it, and it would remain your property. However, the truth is that many businesses may lose their separate property status after marriage.
For example, if the business value increased during your marriage, then that added value may be seen as community property. If your spouse contributed to the business as a joint owner, employee, or even an off-and-on advisor, they might deserve a share of the business during your divorce.
If you formed the business during the marriage, it’s typically considered shared marital property and included in the divisible assets.
This may not mean that the court will make you use money from your business to pay your ex, but it could happen, so you and your divorce lawyer should be prepared. You may want to offer your spouse other compensation aside from your business.
Protecting Your Business in Advance
You may protect yourself and your business ahead of time. You could sign a prenuptial agreement with your spouse, which gives you a good chance of protecting your business. The contract should make any future business or businesses already founded separate property.
You must provide full disclosure to your fiancee, but you cannot coerce them to sign. Engaged couples must sign prenuptial agreements before witnesses or notaries. If you sign a prenuptial agreement too close to your wedding date, the court may declare it null and void.
If you’re already married, you may draft a postnuptial agreement. It’s similar to a prenuptial agreement, but it may fall under greater scrutiny by a judge since one spouse may essentially sign their rights away. Post-nups may lack the legal force of prenups, but they protect you better than nothing.
Or you may opt for a buy-sell agreement, another way to protect your business. These agreements protect partners if one dies when the company is sold and in the event of a divorce. You should consult a good business attorney or tax lawyer to draft the agreement.
Don’t work with your spouse. The more involved they are in the business, whether working with you or for you, the more they will be entitled to a share of the business. Also, make sure you pay yourself a salary instead of reinvesting in the business. If you aren’t paying yourself but are instead putting surplus income back into the business, your ex will likely ask for a large chunk of the company.
Or you may opt to put the business in a trust, removing it as a marital asset. Finally, don’t forget to keep your personal and business expenses separate so that you firmly establish the company as separate property.
Keeping the Business Going During and After a Divorce
If the business pays the spousal support and child support, your ex-spouse probably won’t interfere with the running of the business. However, it’s always best to prepare if you think your ex will interfere.
Speak with your divorce attorney about any issues you worry about, and they may set up legal protections for you.
These strategies to protect your business in a divorce take some planning and strategy; the earlier you start, the better. Don’t try to navigate these complicated processes along, though.
Hire an experienced divorce attorney to represent you.