Divorce is a difficult, detailed process, and if it is not approached carefully, it may seriously harm the long-term interests of both spouses. Even if two spouses have good intentions heading into their divorce, it is rarely a simple or entirely civil process. Business owners facing divorce must deal with extra layers of complication that other divorcing spouses may never consider.
When a spouse owns a business and then gets divorced, the business may qualify as divisible property in the divorce, much like real estate, stocks and other assets. Of course, many businesses are more complex than other assets, so divorce may pose a serious threat to the life of the business as well as the marriage.
If you are a business owner considering divorce, or if you suspect that your spouse may file against you in the near future, you must examine your business and other assets to determine which pieces of the puzzle are your top priorities. If you believe that keeping your business intact is your primary goal, then you may need to make some direct choices and significant sacrifices to do so.
Does your spouse have a claim on the business?
Depending on the circumstances surrounding your ownership, your spouse may or may not have a strong claim to the business as marital property. For instance, if you obtained the business before you married and protected it with a prenuptial agreement, then the divorce may not involve the business at all.
However, if you obtained the business during your marriage or owned it before marrying but did not protect it with a prenuptial agreement, then you may have some very real concerns about keeping it together and chopping it up on the negotiation table. Before you move forward, you must determine if prioritizing saving the business is necessary, and if so, how much you are willing to sacrifice to save it.
If you need to protect your business from your divorce, it is important to look for ways to keep it as separate as possible from your personal life. The less involvement your spouse has in the business, the less they can claim a stake in it. This may mean bluntly shutting your spouse out of business matters, or even firing them if they work within the business itself.
It is also important to demonstrate financial separation. Make sure that your bookkeeping is impeccable. Also, make sure to keep business income and resources in the business and family income in the family. The less mingling these funds do, the easier it is to demonstrate that your family and your business are two distinct entities.
If your spouse does have a strong claim on the business, you may need to sacrifice some other important assets to keep the business secure. First, it is important to consider a business valuation so that you have a clear picture of the actual value of the business. You certainly don’t want to give away greater assets than you have to in order to protect it.
Your spouse may need compensation for their share in the business in order to finalize the divorce, which may include offering up other assets or creating a payment installation plan. However you choose to move forward, make sure to create a strong strategy that honors your goals and keeps your rights secure until you reach the other side and can begin to rebuild.