Divorce is the legal process of ending a marriage and separating the lives of affected spouses. To achieve that separation, they typically need to address their resources and financial obligations.
Small business owners and professionals who run their own practices may have more reason for concern during property division proceedings than the typical spouse facing divorce. After all, they don’t just need to worry about splitting up their personal property and real estate holdings. They also need to consider what might happen to the business that they own.
What concerns frequently arise when business owners choose to divorce?
Who will own the business post-divorce?
The future ownership arrangement for the business may be the primary concern when a business owner divorces. Even if they currently own and run the business with their spouse, they may worry about attempting to maintain joint ownership after the end of the marriage.
Spouses who are business partners may already have a buy-sell agreement in place that they can invoke as part of the divorce proceedings. Spouses who are not business owners may need to factor the value of the company into the property division negotiations as they prepare for divorce.
How can business owners address business equity?
In some cases, business owners have already negotiated marital contracts or business agreements with their spouses that protect their interest in the organization. They may simply need to follow the appropriate procedures to enforce those agreements during the divorce. Other times, business owners may need to perform a valuation of the business to determine what it is worth.
They can sell assets or take on loans to reimburse their spouse for their share of the company’s equity. They can theoretically protect the company by agreeing to compromises and other aspects of the property division process.
For example, they could potentially allow their spouse to retain more home equity or the entirety of their 401(k) in exchange for maintaining sole ownership of the company. They could also take on more debt to make their retention of the business fair.
In some cases, they could even agree to provide alimony or spousal support as a means of sharing future revenue from the business with their spouse. Many unique details govern the best way to handle property division negotiations and the most effective strategy for protecting the business during a divorce.
Business owners preparing to file or who have just received service from their spouses may need the insight of a legal professional as they begin preparing for the process ahead. Working with a lawyer familiar with business owner divorces can help spouses set clear priorities and achieve the best possible outcome given the complex situation that they’re facing.