How do divorce proceedings impact your business? Learn more in this guide to navigating divorce with a business involved.
Losing a partner or disrupting your family’s life can be hard enough, but divorce can also dig into your business. And while all you might have wanted was peaceful separation, you could end up giving away 50 percent of your livelihood in a process that can be tricky and complicated.
To navigate divorce in a way that protects your business, take a look at this guide for answers.
What Steps Should You Take?
Dividing your business could complicate your divorce proceedings. Should a court decide that the business is marital property, its value is divided between the spouses.
In community property states, the value of the business may be subjected to a 50-50 split while in other states, the court examines different factors before coming to a decision.
In the event that your spouse contributed to the building or running of your business, either directly or indirectly by making sacrifices to help it grow, they shouldn’t be denied their rights. Rather, it’s wise to have parameters in place to keep the business from falling apart in the divorce. If your marriage is on the rocks, and you are both considering a divorce, here are several solutions that could help you keep your business.
1. Avoid Going to Court
If there is a slight chance that you could settle the matter out of court, you have a better chance of keeping the business. Disputes resolved in court are not only lengthy but quite expensive. Going to court means the judge will have the power to divide your assets and make a final decision; decisions that will not be up for discussion
You’ll both be more empowered if you take control and use dispute resolution sessions like mediation, arbitration, or round table conferences instead. It’ll be much easier to convince your spouse to have other assets and allow you to keep the business. Still, you’ll need the services of a professional lawyer because they know the secrets of helping you retain your business.
2. Sign a Postnuptial Agreement
If you did not have a prenuptial agreement before the marriage, you could get into a postnuptial agreement after it. However, this should be drafted before, and not during, the divorce when both parties can still agree on things. If done hastily or by coercion and you end up in court, the judge will view it as sketchy, and it could escalate the problem.
One thing that makes divorce with a business involved complicated is that your spouse could claim that they did not understand the agreement. They may say you did not provide them with enough time to review it. They may also claim they did not have an attorney present or a number of other things, and the agreement will be challenged in court.
3. Hire a Third Party Valuation Professional
If it’s already too late to get into a prenuptial agreement, another good option is a valuation. When arguments and disagreements start in a marriage, having a neutral party complete a valuation of the business and all marital assets helps determine how much each person should get. Even if you get to court, it’ll be easier for a judge to make a fair decision when there is a professional valuation.
4. Buy Your Spouse’s Shares
In most cases, spouses are not interested in the business itself, but rather its value. Unless they have been directly involved in the running and operation of the business, it may be easy for you to convince them to sell you their shares. It may not be possible to pay for all the shares upfront, but you may be able to work out an agreement on installments.
You could also sell some of the shares to trusted employees to raise funds and settle the matter with your spouse. Alternatively, you can look for angel investors who will give you enough money to settle the case. The advantage is that you’ll keep the business as a whole without an ex-spouse attached to it.
5. Sacrifice Marital Assets
To retain 100 percent of your business, consider releasing some of your marital assets of similar valuations to your spouse. With your business intact, you can always purchase other assets later on. If you have vehicles and houses you can relinquish, then it can be worth saving your business.
6. Sell the Business
If buying out your spouse is not possible, then the next strategy is to sell the business and share the proceeds. However, this can be complicated, especially if one spouse wants to keep the business, and the other may have to get a court order. Even if you both agree, selling a private business can be quite challenging depending on profitability, marketability, and economic conditions.
It could take months if not years to sell. In that time you also have to agree who will be in charge of controlling it until it’s ultimately sold. Things could get complicated if one spouse disagrees with a price offered by a third party buyer, especially if it’s lower than the initial valuation.
7. Remain Co-Owners
This is a rare option, but if your divorce is amicable, you can continue to manage the business jointly. This is not a viable option for most people as there could always be disagreements, tension, emotional, and psychological challenges affecting the business operations.
To eliminate confrontations, you can both agree to have one spouse retain the primary responsibilities of running the business. In this case, the other spouse would receive an agreed percentage of future profits from the business. Both you and your spouse have to agree on taking the risk of future profits or losses depending on the success of the business after the divorce.
How to Simplify Divorce with a Business Involved
Ultimately, the solutions provided above are the most common ways to deal with a business during a divorce. It’s always advisable to think about these things well before the divorce. A prenuptial agreement is always one of the most effective strategies when spouses want to retain private businesses
If you are already on the verge of divorce with a business involved, consider which option would be the most ideal and implement it. It can be advantageous for you to hire a professional lawyer who will guide you through this process and offer you expert advice.
If you’d like to consult a lawyer or know more about protecting your business, call us at (402) 415-2525!