Protecting Your Business in a Divorce
Divorce is a complex and emotional process that can become even more complicated when a business is involved. For business owners, the stakes are high, as the outcome of the divorce proceedings can significantly affect the future of their business. Following is some advice from our Franklin family law attorneys to keep in mind during this complicated time in your life.
Understanding your business’s value
The first step in protecting a business during a divorce is to understand its value. Business valuation is a critical aspect of the divorce process, as it helps determine the marital portions subject to division. Hiring a professional business appraiser with experience in family law cases is essential. The appraiser will evaluate the business’s assets, income, debts, and market value to arrive at a fair valuation, providing a foundation for negotiations and legal strategies.
Business valuation challenges
Challenges can often arise in the valuation of businesses during divorce proceedings. Disputes between partners may emerge regarding the fair market value of the business, determining goodwill, or each owner’s contribution to the business’s success. Working closely with forensic accountants and financial experts can help address these challenges and provide a more accurate representation of the business’s value.
Prenuptial and postnuptial agreements
One of the most effective ways to protect a business in a divorce is through a well-drafted prenuptial or postnuptial agreement. These legal documents allow business owners to specify how their business interests will be treated in the event of a divorce. A carefully crafted agreement can outline the percentage of the business considered marital property, detail any alimony provisions, and establish a framework for the equitable distribution of assets. While these agreements may not be foolproof, they can provide a significant layer of protection for a business owner.
Business structure and ownership
The legal structure of the business can affect how it is treated in divorce proceedings. For example, if the business is structured as a sole proprietorship or a closely held corporation, the owner may have more control over its fate. Keeping detailed records of business operations, finances, and ownership structures is important. Additionally, having a well-defined operating agreement or shareholder agreement can outline procedures for handling changes in ownership, including those resulting from a divorce.
Equitable distribution vs. equal distribution
Here in Franklin, Tennessee, marital assets, including businesses, are subject to equitable distribution during a divorce. Equitable distribution does not necessarily mean a 50-50 split, but rather a fair and just division based on various factors, including the length of the marriage, each party’s contributions, and financial circumstances. As a business owner, you should work with your attorney to argue for an equitable distribution that considers your role in building and maintaining the business.
Compensation structure and divorce
The compensation structure of a business owner can impact divorce proceedings. Business owners often intertwine personal and business finances, making it essential to have a delineation between personal income and business profits. Proper documentation of salary, bonuses, and dividends can help demonstrate the owner’s true income, affecting calculations for alimony and equitable distribution.
Buy-sell agreements
For businesses with multiple owners, implementing a buy-sell agreement can be a proactive way to address the potential impact of divorce. These agreements typically include provisions that allow the business or other owners to purchase the departing spouse’s interest in the event of a divorce. By specifying the terms in advance, business owners can maintain control and prevent an ex-spouse from becoming an unwanted business partner.
Keeping personal and business finances separate
Maintaining a clear separation between personal and business finances is crucial for protecting a business in a divorce. Business owners should establish dedicated business accounts, avoid commingling personal and business funds, and meticulously document any contributions of personal funds to the business. This separation can help demonstrate that the business is a distinct entity, potentially shielding it from being considered marital property.
Negotiating a settlement
In many divorce cases, parties have the opportunity to negotiate a settlement outside of court. Business owners should work closely with their attorneys to explore settlement options that may involve trading other assets in place of a significant share of the business. This can be a strategic approach to protect the business while still achieving a fair and mutually agreeable resolution.
Seeking professional guidance
Navigating the complexities of protecting a business in a divorce requires expertise in both family law and business matters. Engaging professionals such as Franklin family law attorneys, business appraisers, forensic accountants, and financial advisors can provide comprehensive support. These experts can assess the unique circumstances of the business and the divorce, offering tailored advice to safeguard the owner’s interests.
Are you the owner of a business that needs protection during a divorce? Talk to the Franklin family law attorneys at the Law Offices of Adrian H. Altshuler & Associates today. We can help ensure your assets remain protected throughout the divorce process. To schedule a consultation with one of our experienced attorneys, give us a call or use our online contact form. We’re proud to serve families in Franklin, Brentwood, Columbia, and throughout Middle Tennessee.