Protecting Your Business During A Divorce

Business owners who are facing a family legal dispute where the business is considered an asset will always have serious questions surrounding the future of their company and its staff members.

Will the business be divided? Is there a way around not touching the business at all?  Could it mean the loss of the business altogether and the jobs of those who work within it?

No matter if you are speaking to a family attorney in down-town New York, a family lawyer Brisbane-based or a legal representative in Hong Kong, these are questions that every business person must consider during a divorce negotiation.

When is your business a marital asset?

The first question you need to ask is whether the business is considered to be marital property or not.

Unfortunately, there is no clear-cut answer. State laws across the US vary, and there are several laws that must be considered when dealing with the issue.

For this reason, how you set up the business, when it was set up and what protections you have put in place will all be up for consideration.

Just some of those considerations include:

What role did your spouse play in the business?

Did you own the business before your marriage, and if so, did you protect it’s ownership by keeping it a separate entity.

Did you combine any of your marital finances, property or utilising marital bank accounts to run your business?

Is your business set up as an Limited Liability Company (LLC) or a partnership? Perhaps you have it in Trust? Any of these may protect your business from being considered part of or your marital property.

Is there a legal prenuptial or postnuptial agreement that discussed the business and property settlement?

Should the business be considered part of your marital property, then it is most likely that it would be subject to asset distribution laws during a divorce settlement, depending on the state that you made the application.

How would you divide the business?

One of the most important steps would be to gain a formal appraisal from a third party who is unbiased as to the outcome of the value of the business and which party would be receiving benefit.

There are then three options that could occur:

1. One spouse keeps the business

This is the most common option during a divorce and it’s usually the most tax-efficient based way to move forward.

If there isn’t enough money for one of the couple to buy out the other’s business shares, then a settlement note can be agreed upon and the company’s shares can be bought out over time.

There are advantages to transferring the shares this way, but the downside is that it must be structured properly since it may attract capital gains tax.

2. The business is divided between both spouses

This option looks straightforward financially, but it’s not for every divorcing couple.

There may be emotional ties or family connections keeping both parties willing to work together in the company, but most divorcees carry such emotional hurt through the process making this an uncommon option.

This option is for those who can still work together on friendly terms and who are willing to remain in each other’s lives.

3. The business is sold

This option has the couple sell the business and split the proceeds so they can pursue their individual interests.

The downside is that it takes time. For those wanting to sell to move onto new horizons in their life or to retire, it can mean a hold up for some time.

Things that must be considered:

It requires one of the spouses or both to remain in the business to keep it functioning and prepare it for sale until it finalised.

There may also be economic reasons for waiting to sell when the conditions are better for a sale.

A spouse may resist the sale for many reasons, since both spouses must be in agreement for the sale to take place.

Divorce and the splitting of a business that was a couple’s livelihood is bound to be an emotional experience.

For this reason, the most important decision that you can make is to speak to a family law attorney who will provide advice regarding your business asset and the options that are available for you to consider.

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