When Business Owners Divorce

When Business Owners Divorce

In many divorces, the house is the most sought-after asset. When a business is involved, both spouses are often fighting for their fair share, especially if the company is profitable. This can be frustrating, particularly if only one spouse owns the business and is in charge of its day-to-day operations.

If you are the sole proprietor of a company, is your husband or wife entitled to a portion of it in a divorce? Absolutely. In a divorce, any asset is fair game, and that includes businesses, even if the business was formed before the marriage. It is easy for a business formed before marriage to become marital property thanks to commingled assets.

If the business started during the marriage and your spouse worked for your company or put funds toward the company, then he or she will entitled to a share of it. Florida is an equitable distribution state, so while the company may not be split 50/50, your spouse can receive a portion of it, based on what the court thinks is fair.

This means your ex-epouse could end up being your business partner to some degree. It is extremely difficult for a business owner to be put in this situation, so what typically happens is that you may be forced to buy out your spouse’s share of your company or offer a different asset in exchange. Negotiation and compromise are key in this case.

Dividing a business can be complicated. There are issues to consider, and assessing the true value of the company can be a time-consuming process.

Common Issues

Placing a fair value on a business can be difficult but necessary in order to ensure that both parties in a divorce get their fair share. The value is determined in three ways: the market, the asset and the income. This means looking at the company’s financial statements, such as receipts, tax returns and sales. It is often a good idea to have a valuation expert help with the discovery process and estimate the expected increase in value over time.

Double-dipping is a common issue with divorces involving businesses. This occurs when a spouse recovers multiple times for one single asset. For example, a spouse may request a share of the business, as well as alimony payments based on the spouse’s future income, which is determined by business performance.

Dishonesty and deception is common in business. A business owner may go to great lengths to fudge the numbers on financial statements in order to make it look like the business is not gaining as much profits as expected. Conversely, business owners may also exaggerate liabilities and expenses to lower their bottom line. This results in less money for the other spouse, as well as reduced child support and alimony payments.

Managing a business during a divorce is extremely distracting. The process of divorce and asset distribution takes time and energy away from the business. It also causes employee morale to decrease, as workers wonder what will happen next. You will need to put your employees’ minds at ease as you navigate through the process.

Protecting Your Business

The best way to prevent these issues is to plan ahead. Once you form your business, you need to take the proper steps to protect it. Do not wait until your marriage is in trouble and divorce is on the table. By then, it is too late.

The most common way to protect a business is through a prenuptial agreement (if the business was formed before marriage) or postnuptial agreement (if the business was formed during the marriage). Both agreements are typically the same, but they occur at different times. Both outline what will happen to certain assets in the event of a divorce. Both spouses are in agreement and this prevents the court from taking control and making decisions. When this happens, neither party is happy.

When creating a prenuptial or postnuptial agreement, you must be honest about your assets. This means full disclosure. If you hide assets or force your spouse to sign the agreement under duress, the agreement is considered null and void.

Another way to protect your business is to pay yourself a decent salary. By doing this, you avoid the situation in which your spouse could claim that little income went into the household. This would then allow your spouse to ask for a greater share of the company or other assets.

Investing in a partnership or buy/sell agreement can also protect your business in the event of a divorce. It can remove a spouse or fiance from any future interest in the company and include stipulations to protect the business owner should a divorce be imminent.

In any case, it is important to involve a lawyer. Laws vary from state to state and you want to make sure you take the proper steps to protect your business. These issues are extremely complex, so seek legal advice from a professional.

Seek Legal Help

If you own a business and are considering divorce, make sure you understand everything that is involved. Even if your spouse was not involved in your business, he or she could still end up owning a portion of it, which can make things complicated after the divorce.

Divorces happen 50% of the time. Business owners are not immune from it, so make sure you are prepared. Seek legal help from Palm Beach divorce attorney Scott J. Stadler. He can assess your situation and offer valuable advice to help you protect your business. To learn more, call his office at (954) 346-6464.