Anyone preparing for divorce has numerous challenges ahead of them. Couples with children have to work out arrangements to share parental rights and responsibilities. Other couples have to negotiate settlements for dividing their property and their debt.
Certain economic factors can make divorce much more challenging for spouses to navigate and may create more opportunities for disputes. A business owner often faces unique complications during divorce proceedings. There are several challenges that they may have to prepare for in order to protect their financial future post-divorce.
The potential of continuing to work together
It is relatively common for both spouses to work for the family business. While one spouse may perform key company functions, the other might serve as a receptionist, accountant or custodial professional. In some cases, it may be possible for the spouses to establish an arrangement in which they continue to work together at the company. Other times, the best solution might be to provide a reference and facilitate the non-owner spouse exiting the company for outside employment.
The need to protect company ownership
People usually don’t want to co-own a business with their spouses after divorce. People might expect to treat the business as their separate property if they are the sole owner of the company on paper. However, commingling by reinvesting in the business or allowing a spouse to provide unpaid services at the company can put some of the ownership interest at risk. People frequently need to review company finances very thoroughly to determine if the business is part of the marital estate. With exceptions for those who have prenuptial or postnuptial agreements, it is common for at least a portion of the company’s value to be vulnerable during the divorce.
The risk of a double dip
When one spouse owns a successful business, the other might expect to receive a portion of its value in the divorce. They may also feel like they should receive ongoing financial support after the divorce because of the income that their spouse may earn. Depending on the valuation method used to determine the fair market value of the company, the future earning potential of the business may have already factored into the property division process. When there are requests for alimony or spousal maintenance, spouses may have to review the situation very carefully to prevent inappropriate double dipping or using the same income twice during divorce negotiations.
Business owners preparing for divorce often need help to preserve their investment in their company and obtain the best outcome possible. Seeking personalized legal guidance is a good way to get started.