Protecting Your Business During a Divorce

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A divorce is not a happy situation for anyone involved. You may realize how much it hurts you, your children, and maybe your parents, but when there is a business involved, it has the potential to hurt a much wider group of people. With a business you have employees, customers, vendors, your outlets, and all the families of these people which can be touched by the fallout. In addition, you can end up financially devastated if the court decisions don’t find in your favor. When you own a business, the division of assets becomes much more difficult, and you may need some free marriage advice. You have to find out how to protect your business in a divorce.

People have been known to stay married just because they share the income from a family business. They may live in the same house, but that’s where the relationship ends. It’s a cold, unfeeling environment that can emotionally challenge everyone living there with them. These people live like this because they’re afraid that if they divorce as they would like to do, they are going to be forced to live much more frugally than they’ve become accustomed to. A divorce may even cause their business to close. If you find yourself in this position, you need to know that there are some things you can do to help save your business.

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If possible, work with a lawyer who is familiar with your company and who has worked with both of you successfully in the past. This person will already have a thorough understanding of the value of the business and will be able to address both parties in the mechanics of making divorce decisions that will be mutually beneficial to it. Even if your marriage has fallen apart, neither of you wants to destroy your business if you can avoid it.

For a business that you owned prior to getting married, it’s always wise to have a prenuptial agreement. In it you can provide for what will be best for all parties involved should the marriage eventually dissolve like 50% of all marriages do in the United States today. Even if you’re already married, you can still make a legal agreement about how you will divide the business if something should happen. Seek free marriage advice if necessary. You want to do everything you can to make a possible split more equitable ahead of time when you have a cool head because the stress caused by a divorce and trying to make a property settlement can become a nightmare without prior planning.

(Useful tool: spousal support calculator)

When dealing with business assets, the court can award a 50/50 split irrelevant of contribution to the business itself. This is a frequent occurrence where one spouse works and the remains at home. It is assumed by the court that the homemaker party has sacrificed their career on the basis of financial security received from the business assets in question. Not only this, but the nonworking party is assumed to have supported the working party in their business ventures.

In situations such as this, the court will not necessarily enforce a sale of the business to fulfill the conditions of the split. If the business is providing a suitable income, big enough to support the ex-spouse and any family involved, then maintenance money will be sought instead. Selling individual assets from the business whilst keeping it as a going concern can fulfill the claims of a divorce.

How does the court achieve a settlement?

You should obtain a current valuation of the business assets so that the court is able to negotiate a settlement. This valuation will need to demonstrate more than just the current balance on the books; it will have to show the profitability of the business and it’s potential future earnings. The valuation of the business should be done both as a going concern and what it would make if it were to be liquidated. The court will use this information in connection with all the usual factors it considers during divorce proceedings.

(Useful tool: business valuation calculator)

Once the valuation information is obtained, both parties should attempt enter negotiations prior to taking the matter before a court. Such negotiations can happen via mediation or collaborative law. Resolutions achieved like this can save both parties money spent on legal costs and court fees.

How can I avoid losing my business assets upon divorce?

If your business is pre-owned prior to the marriage, then it is advisable to seek protection through a prenuptial agreement or pre-civil partnership agreement.

However, if the process of creating your business occurred during your marriage there are certain actions that you can take to ensure that each party’s rights are defined. Examples of these measures are creating a shareholder agreement or forming a discretionary trust. These agreements can include directions to how business assets will be divided upon divorce.

 

If you are considering implementing any of the above protective measures, it is always advisable to seek legal advice from specialist divorce solicitors prior to taking any action.