Divorce and Owning a Business Together

A divorce takes a tremendous emotional, social, and financial toll on people, no matter who files for it. When we get married, we all hope for “happily ever after”. We don't think that one day we might fight our spouses for homes, bank accounts, businesses, or, worse, children.

But the rates of divorce in the United States are the way they are.

As an entrepreneur, besides all the troubles you have to deal with in the face of an imminent divorce, you should never forget to protect the business you built with your money, time, sacrifices, efforts, and tears.

1. Hire a Lawyer to Guide You through the Maze of Separate vs. Marital Property

Divorce is hard for everyone involved, not only the spouses. When it comes to children, a specialized attorney versed in family law is one of the most significant elements that families and children of divorce can rely on to make things less traumatic and find the best solutions for all parties.

When one or both spouses own a business, seeing that “child” broken to pieces or losing it entirely to the other side can be devastating. For this reason, you should immediately hire a lawyer if divorce is still in the “talks” phase, and your spouse did not file the papers yet.

With a skilled lawyer by your side, you can resolve all your divorce legal issues reasonably without losing your business.

Rules are Often State Dependant

One of the first things a lawyer can help you with is explaining the difference between separate and marital property. This will depend on what state you live in and conduct your business.

For instance, in California, both spouses have equal rights (usually a 50-50 split) of all marital property, including the company in question. Georgia, on the other hand, allows equitable (fair, not equal) distribution of property when determining a settlement.

While divorce and property issues vary significantly from state to state, separate property includes, broadly, the following:

•         Property that a spouse owned before the marriage;
•         An inheritance received by only one of the spouses;
•         A gift that one spouse received from another party (not the other spouse);
•         Pain and suffering damages awarded to one of the spouses in the case of personal injury.

A lawyer can help you discern whether your separate property became marital property throughout the marriage. For instance, in some jurisdictions, if you owned a business before getting married, but that business increased in value during the marriage, it may become marital property.

In other words, first should come to the lawyer to help the business owner or both owners understand the legal jungle of property, divorce, and settlements.

2. Hire a Third-Party Business Evaluation Professional

Agreeing on everything to avoid even more conflict with your spouse is never a good idea. When it comes to settling on properties and assets, many spouses are hell-bent on evaluating the china or the car, but seldom do they remember to assess the business one or both of them own.

One common practice in divorce cases is to ascertain the value of a business’s value on its 10-year projection of growth or revenue.

Depending on this evaluation, the court establishes how much spouses have to pay the ex to buy out their business share.

It is also wise to rely on your accountant to give you an estimate of your business’s value and assets.

Forensic accountants and auditors are excellent resources if you want to determine your ex’s involvement and participation in your business. It will help you establish a fair share of the company to offer in the settlement.

3. Buy Your Ex’s Share of the Business

Depending on what your state’s laws say about property and how good your lawyer is, you can reach a settlement that includes buying your spouse’s share of the business – if it is the case.

At first, it may seem like a lot of money you do not probably have.

Still, you have plenty of options to raise some capital. You could sell a minority stock of the business, attract an angel investor, open a business line of credit, etc.

It can be a long and strenuous road, but with a skilled attorney on your side, you could preserve your business intact in your name.

4. Let Go of Other Assets to Protect Your Business

Just as you protect your money and finances from a divorce by deciding what you want and need, so you should proceed when you save your business.

You can discuss with your lawyer the other assets you can forfeit to gain full ownership of the company.

Consider high-value items, art pieces, antiques, equipment, investments, other property, and everything else you can live without only to safeguard the integrity and ownership of your business.

5. Establish a Separation Date Quickly

You should consider this action, especially if you live in a community property state. It is a way of protecting your income, the business revenues, your assets, and, yes, your mental sanity.

One there is an established separation date, your spouse will no longer be able to claim rights to half of your income or half of the new assets you purchase with that income.

Bottom Line

The movie War of the Roses and almost all courtroom dramas – old and new – taught us that splitting property and businesses could turn into terrible hostilities.

The best idea would have been to sign a pre-nuptial contract or even a post-nuptial agreement to spell out the conditions of splitting assets and liabilities in case of divorce or death.

However, if you did not sign any contract and you built a business on your own (or with your spouse) during your marriage, fighting for that enterprise should be more than just a clash of egos.

A company, even the smallest one, represents much more than its owners. It is about the people who work there and their families.

Your divorce can impact clients and suppliers, a brand, and even a community. Do not allow your differences to ruin all the hard work you brought into the world with your business. Stay strong!

Have your business assets ever been jeopardized?