Getting Divorced? Here’s How Your Divorce May Impact Your Business

An article that was published by Business Insider ‘The Most Expensive (and Explosive) Celebrity Divorces of All Time’ gave the readers a peek inside the affluent world and their struggles after marriage fail. Divorce is very real for most of us. In the United States, roughly 40% to 50% of marriages end in divorce according to the American Psychological Association.

But many people do not seem to understand the story, reason, and impact behind their divorce has on their businesses. But the reality of this is quite closer to us.

The multimillionaire divorces have a hefty negotiation of roughly $38 billion for the divorce settlement that also sometimes includes transferring about $19 million shares of their business to their would-be ex-spouse’s bank account. And most of us do not have to deal with that. As per those statistics in 2019, the United States has an estimated 32 billion businesses. This means that if you own a business and get married, the divorce will create a major impact on your business.

What happens to your business in a Divorce?

Three factors must be included in a divorce case that involves a business:

  1.     Is your business a separate property or a marital asset? There is a law in Florida that states, any non-marital assets which are obligated during marriage or/and asset that is obtained during the marriage might be considered a marital property and will be divided between the partners. In this process, all the liabilities and debts are included.
  2.     What is the interest value of your business?
  3.     What happens to the interest value after the divorce case is resolved?

The process is more complicated than it seems. The fair market value of your business is determined with the help of different valuation methods. These methods are not limited to an income method, a market method, or an asset-based method. If the value of your business is significant, then you should think about seeking assistance to determine the fair market value of your business. an independent qualified valuation professional, such as Certified Public Accountant (CPA), Certified Business Appraiser (CBA), or Accredited Senior Appraiser (ASA). If a dispute is raised, each spouse can hire their own professional.

After it is decided if your business is a separate property or marital asset, as well as the value of your business, what happens to your business interest is decided after the divorce case is resolved. There are three options given to them:

  1.     One partner buys out the other
  2.     They both together make a decision to sell the business.
  3.     They remain co-owners of the business.

The business should be continued with no disruption to the creditors, members, shareholders, and employees during the divorce negotiations. A good attorney can help you with any issues that come up such as any type of additional legal scrutiny and any potential violations of the loan security agreement.

Are there any ways to protect your business during a divorce?

There ways to protect your business during divorce especially if you own a business before getting married. Following are strategies you can consider:

  1.     Sign a prenuptial agreement. If you own a business before you get married you might want to consider signing a prenuptial agreement before the wedding.
  2.     Postnuptial agreement. It is pretty much like a prenuptial agreement but is signed after the wedding. You can separate your business from your marital assets.
  3.     Put your business in a trust. This will help you to keep your business from being determined as a marital asset.
  4.     Execute a buy-sell agreement. If the business owner’s status is changed such as divorce or death, this agreement decides what happens with the business.
  5.     Maintain good records. It is important that your personal finances and business finances are shown separately.
  6.     Don’t involve your partner in your business. Keep them from working for the business. This way you can be entitled to a greater portion of the business.

Thinking about getting a divorce?

Taxes are another important part when it comes to dividing the property. In some cases, getting financial benefits might not be beneficial for one of the parties after a divorce. There might be other marital properties that can benefit them.

Make sure you are hiring qualified experts that can manage time and money in resolving a case.

Choosing the right attorney is also very important to make the process easier. A divorce in itself is emotional and stressful. Getting stuck in negotiation complications can add to the stress.

Plan and understand how divorce will have an impact on your business.

A good and experienced attorney will work closely to evaluate your business ownership rights and help you with settlements that are customized to the specific requirements of your family and your business. These cases are complicated financial cases and can lead to higher legal issues. Therefore, an expert attorney is important to have on your side who knows how to argue effectively before the court. 

Article by Robert Pinchuck