Divorce can affect most parts of your life. Even uncontested divorces may lead to claims on your business.
Impact
Everyone from a business owner to a majority shareholder, board member or CEO should know about and take measures to limit business disruption. These measures are especially important in a high-asset divorce.
A divorce can divert a spouse’s attention from day-to-day operations because of the time needed to collect information and discuss legal strategies along with the emotional distractions. A spouse may seek to include their soon-to-be former spouse’s business interests as marital property.
A non-owning spouse who played a role in the business may try to become involved in daily operations or seek stock. When this occurs, that spouse can leave the business by selling their share. This may impact stock prices.
Alternatively, that spouse can stay, and business tensions will likely continue.
Prevention
A prenuptial agreement before marriage or a postnuptial agreement during marriage can set forth what happens to the business if the marriage ends. Couples can decide whether the existing business is marital property regardless of the business interests of the non-owning spouse.
These agreements may also address the company’s valuation at the time of the divorce and whether any appreciation of assets is allocated in property division.
Do not commingle your assets into the business by, for example, using collateral in your home to invest in the business. Keeping assets separate make it easier to decide who owns them.
Paying yourself a lower salary means that there is more money to divide later in a divorce. Pay yourself a decent salary helps your position in a settlement.
Placing the business in a trust may exclude it from property division. But there are laws prohibiting the fraudulent transfer of assets. Seek legal guidance first.
A whole life insurance policy for liquidation can provide money for a high settlement agreement. This may help protect your business assets.
Better late than never
If you took none of these preventive steps, these important measures may be helpful:
- If the spouse’s participation in the business from stock distribution becomes unbearable, you can sell the business, but sale proceeds may be divided.
- Trade assets that may have less importance to you in return for keeping your business.
- Instead of selling your entire business interest to obtain needed cash, you may offer a portion of your stock to partners or employees and a buy-back agreement may be negotiated for later.
- Spouses may agree to pay a settlement over time to meet commitments and protect their business interests.
Attorneys can provide options to clients who are going through the difficult process of divorce. They may also help them seek a fair and reasonable property division.
