What Can I Do To Prevent Losing My Business During a Divorce?

Your divorce can create a number of financial and emotional challenges. As you separate from your former spouse, you must divide your possessions and your finances. If you own your own business, you may also need to decide what to do about it in the divorce. You do not want to lose all the effort and time you have put into building your business.

So how can you keep it?

1. Separate business finances from personal finances.

In general, your business finances and your personal finances should be entirely separate. Tying business and personal finances together may mean that if something happens to your business financially, it will impact your personal credit and finances. Worse, things that impact your personal finances could also impact your business’s finances–including your divorce.

Instead, clearly separate your business and personal finances. Pay yourself a reasonable salary, rather than removing profits from your business. Not only can this help you protect your personal finances, it can help you protect the business during your divorce.

2. Carefully consider your spouse’s involvement in the business.

If you and your spouse are equally involved in your business, with both of you contributing equally, you may have a harder time arguing that your business is an asset that belongs to you alone. On the other hand, if you own the business and you are the one who takes care of most of the tasks associated with running it, with little involvement on the part of your spouse, you may have better odds of keeping your business in the divorce.

Unfortunately, the court will look at your spouse’s long-term involvement in the business, not just at the short-term. That means you should not expect to just suddenly fire a spouse who has worked as your partner in the business for years. On the other hand, if your spouse has not been involved in the business for some time–especially if your spouse has another source of income–you may have better odds of keeping the business yourself.

3. Prepare to negotiate.

Take a look at all of your assets, including your business. How much are those assets worth? How are you and your spouse planning to split your assets? There are several steps you may want to take to help protect your business as you manage your divorce.

Bring in an independent evaluator to determine the value of your business.

During your divorce, you and your spouse will split your assets. In many cases, you may try to split them equally: dividing your vehicles, your home and properties, your investments. Your business is an asset like any other. It has a financial value just like your other assets and possessions. Having a solid number to assign to it can make it easier to determine how you will assign it.

In many cases, an assessment of your business’s value can work in your favor. For example, if you are still in the early years of a startup, your business may have a relatively low financial value–or it may have more debt than income, at least for that period. In other cases, your business might have little tangible value or few assets wrapped up in it.

You should also consider what value you have to your business. For example, if you are the only licensed authority in your company, your business might be worth little without you–and that can work in your favor as you manage your divorce.

Carefully value your other assets.

You will need to assign value to all of your assets in order to create an equitable split in your divorce. Keep in mind that “equitable” does not always mean “precisely equal,” but it does mean that each partner takes fair value away from the divorce. Knowing the value of your other assets can help you set them against your business.

Know what you’re willing to give up.

In order to keep your business, you may need to give up other assets or investments. Consider what you’re willing to offer your partner in order to keep your business. Do you want to allow your partner to keep a portion of your retirement accounts? Would you prefer keeping your business over keeping the house? Before you sit down with your spouse and work out an agreement concerning your business, consider what you might be willing to give up in exchange for the right to keep it. Make sure you consider your business’s future earning potential as well as the potential value of those assets.

You may not immediately want to tell your spouse everything that you’re willing to give up to keep the business, especially if you’ve found yourself locked in a number of arguments concerning the division of your assets. Instead, talk to your attorney about how to handle those negotiations.

4. Consider alternative arrangements.

In some cases, you may have a hard time splitting your assets without giving your spouse a percentage of the business. You might not have enough other assets to balance the value of the business or to buy your spouse out, or your business might be worth a great deal of future income that your spouse is not willing to give up. However, you may be able to work out an alternative arrangement with your spouse. You might, for example, arrange to make payments to your spouse over the next several years in order to protect the value of your business. You might consider paying out a percentage of the profits to your spouse over time, or working out an arrangement where your spouse is a silent partner in the business. In some cases, you may be able to successfully create an arrangement that works for you and your spouse, but still allows you primary decision-making rights regarding your business.

You do not have to lose your business or give up your freedom to run it as you please during your divorce. Pedrick Law Group, APC, can help. If you’re moving toward divorce and need to know more about your rights, including your ability to protect your business, contact us today to learn more.