Going through a divorce is already a major challenge in and of itself. A divorce can make things even more complicated than they already are, especially if it is not quite amicable.
During this time, you may be worried about how your divorce will impact your business, and rightfully so. Most states consider a business as community property in a marriage. So, if you want to protect your business as much as possible while separating from your spouse, here’s what you can expect:
Various outcomes for your business after the divorce
A divorce makes a business a hundred times more complicated, mainly because more than a few things can happen when you separate community property. Furthermore, many factors determine which spouse ends up with what.
It is highly advisable to talk to a family attorney before you make any major decisions with your business. But in general, here are the possible outcomes that you can expect:
- You and your spouse may end up being business partners. If neither of you wants to give up business ownership, you can consider becoming business partners instead of dividing business assets. While this option may not work for everyone, it can be a great way to reduce the impact on your business, given that you and your spouse can still work together in a professional setting.
- You can give your spouse other assets. Instead of giving up half the business to your soon-to-be-ex-spouse, you can give them a bigger share of other marital assets, such as vehicles, properties, and stocks.
- You can liquidate the business. Liquidating the business that you worked so hard to build may not be the best option, but it can be the only solution that works for both you and your spouse. In this case, the proceeds from liquidation will be split fairly—but not necessarily equally—between the two of you.
Valuation of business assets and debts
You or your spouse can hire a forensic accountant to determine how much the business is worth. Furthermore, they can assess the value of each spouse’s stake in the company using various aspects, such as the business’ industry, annual financial reports, cash flow, and so on.
If the business increased in value during your marriage, that increase in value might be considered marital property (unless you have a prenuptial agreement that opposes this). In this situation, any marital property is subject to equal or equitable distribution between spouses.
If your spouse contributed to the business or if the business or if the business was started during the marriage, the business is marital property and therefore subject to distribution during a divorce. However, there are other ways you can compensate your ex-spouse for what their portion of the business is worth without the money coming from the business itself. Talk to a lawyer about this is if it is one of your concerns.
Additional factors that can affect the court’s decision
The court may also consider other factors to determine the most equitable outcome for both spouses. Examples include the extent of each spouse’s involvement in the business’s operations, their contribution to business debt, and their role in growing the business’ revenues and assets.
If one spouse is running the business and the other was the primary caretaker of the children without having anything to do with the business, the court may still consider it a contribution.
How to protect your business in advance
It might probably be too late to do these now, but if you enter another marriage in the future, here are the best ways to protect your business moving forward:
- Get a prenuptial agreement. There is no guarantee that a prenup will entitle you to the entire business, but it can help you keep as much as possible. In your prenup, you must indicate that any business that you own and businesses that you start in the future will be kept as separate property.
- Get a post-nuptial agreement. If you cannot get a prenup before getting married, you can consider getting a postnup, although the latter is less powerful in court.
- Ensure that your spouse is not working with you or for you. The less involvement they have with the business, the less they are entitled to its assets in the event of a divorce.
Divorce can certainly impact your business, but it doesn’t have to be drastic. By working with a good lawyer, you may be able to keep as much of the business to yourself even without a prenuptial agreement, as well as protect your business moving forward.