Almost all of you have jobs. Some of you own your own businesses. Whatever the profession, you pour your heart and soul and hard work into these ventures. They not only represent your passions and drives, they’re also practical concerns.
After all, that’s how you make money to live and support your family. Ending a marriage is complicated enough in the most straightforward situations, but when you have to deal with a business during divorce, the situation becomes even more tangled.
The process of ending a marriage is already a snarl of shared assets, parenting plans, and more. When there’s a business during divorce, it presents a whole different set of problems and challenges. You must consider a number of issues and answer a variety of questions.
- Are you and your spouse business partners?
- Did you start the business before the marriage?
- Do you have outside collaborators or investors?
- All of these factors and others play a role.
When there’s a business involved, the stakes of divorce become that much higher. This isn’t just losing a car or needing to find a new place to live. How this plays out directly impacts your livelihood and quality of life. It’s a tricky road, and with that in mind, here are some considerations to keep in mind when dealing with a business during divorce.
Businesses Are Assets
You may have a deep personal connection to your business. Whether it’s a restaurant, a dog walking service, or you make artisanal hummus, you poured your all into this venture. But in divorce, above everything else, your business is an asset. It’s probably one of your most valuable assets to boot.
Since the courts view your business as an asset, in the end, it treats it as such. It may have great personal worth, but it also has a specific dollar value, and that’s what the court looks at. It’s one of many things to break down and distribute between you and your spouse during the division of property.
Valuation of a Business
One big factor that impacts business during divorce is valuation. If you have an attorney, one big decision to make is whether or not to have the value of a business appraised.
In the case of many smaller service-oriented businesses, like hair salons or construction companies, they don’t necessarily have “goodwill.”
When it comes to accounting, “goodwill” refers to intangible assets that aren’t separately identifiable and quantifiable. Think reputation and position in a particular marketplace, among other variables.
In situations without goodwill, a business is worth what you can easily measure. It amounts to assets less liabilities. They create an income and are more akin to a traditional job.
But other businesses have a value beyond that. A company with a high standing in its field has a higher value than one with a lower position, even though that’s difficult to put a dollar amount on.
When it comes to this type of business during divorce, a good appraiser is often critical to determine an accurate value. This, however, is not cheap. It can cost anywhere from $5000 to $15,000 depending on the specific situation.
How and when your business began may play a part when it comes to divorce. If you and your spouse launched this venture together while married, the courts will most likely consider it shared marital property and treat is in the manner.
Things do change, however, if the business predates your marriage. In this case, the court will likely view it as, at least in part, separate property. But other factors influence and complicate this status.
If you invest joint funds, that changes things. Commingling marital and business assets further muddy the waters. When your spouse invests sweat equity in the business, the lines also blur. If you have other business partners or used outside investment to get off the ground, all of that influences how the court views your business during divorce.
Protect Your Business During Divorce
Just because the court views a business as the property of both spouses, that doesn’t necessarily mean it will divide it between the two parties.
The court could assign the business to you and award other assets to your spouse to offset any discrepancy.
You also have other options to protect your business during divorce. These strategies include:
Prenuptial Agreement: If you worry about losing the company you built due to potential divorce, a prenuptial agreement is one option. You and your spouse enter into this contract before you marry and lay out how to divide existing assets in the case of divorce. This protects your assets and legally safeguards possession of your business.
Postnuptial Agreement: A postnuptial agreement can help safeguard a business you start after you marry. Similar to a prenup, this contract allows a couple to specify who gets a business, or other assets, in the event of divorce. This offers one way to protect your hard work, even after the wedding.
A Trust: Another option to protect your business during divorce is to create a trust. This strategy comes with a laundry list of complicated legal concerns, but it may work in certain cases.
Dividing A Business During Divorce
Much like how you have multiple options to protect your business during divorce, you also have various ways to divide and allocate the assets in the settlement. A few potential strategies include:
Buy Out: One common option is for one spouse to buy out the other. This works best when one has more interest in continuing to run the business than the other.
Forfeit Other Assets: As stated earlier, couples often work out a split that’s favorable to both parties. For example, in exchange for the business, you may give up any claim to a shared home or other valuable properties.
Divide the Business: In some cases, you may have the option of splitting a company into separate businesses. For instance, if you and your spouse run an accounting firm and have distinct clients, this option may work.
Sell Out and Move On: If it’s impossible to work out any other arrangement, your best option may be to sell the business, split the proceeds, and move on. This is often easier said than done, however. How much you sell the company for, if you can sell it at all, depends on many factors. Location, industry, competition, and demand all impact the potential dollar amount. Many businesses simply don’t sell on the open market.
Business as Usual: This is rare, but it does happen. In some cases, couples divorce but continue to run their shared business as usual. Sometimes marriages don’t last, but a business relationship continues to flourish. In amicable splits, this may be a realistic option.
Ending a marriage is complicated enough, but when you have to worry about a business during divorce, things get even messier. In most circumstances, it’s usually in your best interest to hire an experienced attorney. And that’s definitely the case in these situations. A divorce lawyer with an understanding of these matters can help guide you through the process and protect your interests.