There are ways to make sure your divorce does not impact your business.
The situation is complicated by the fact that one in two marriages these days ends in divorce, with distributions of property becoming a stressful and challenging processes. Things become even more difficult if a business is involved.
Whether you’re a majority owner, a board member, or the company’s CEO, there are things you can do to avoid your earnings or business from being harmed by your divorce.
What are the consequences?
Divorces are not always simple. Aside from child custody, the financial ramifications are the most frightening. Even if your divorce is uncontested, you may still be claimed all of your possessions.
There’s one huge cause for this: marital property. It includes money in a savings account, stocks and bonds, and other assets. It is defined as “all income and assets acquired by either spouse during the marriage.”
Find out more about dividing money in a divorce.
Equitable distribution or community property.
How much is your business worth? The following nine states are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in one of these states, the split is even 50/50.
The remaining 41 states are classified as equal distribution areas. In these areas, the final conclusion of marital property is made by a court. This sort of dispute might take a long time to resolve, especially if neither side is willing to settle on an equitable division.
On a day-to-day basis.
Divorce proceedings are a strain on all parties’ emotions. If you’re running a firm, your attention may be diverted during this time, putting your business at risk. You could be distracted by conversations with lawyers, the gathering and submission of documents, or the burden that the issue has put on you.
If you’re a significant stakeholder, things get more difficult. If your ex receives a large stake in the company as part of the settlement, they may become an unwanted partner, causing the company to fall apart. Furthermore, your interest has been diluted, possibly resulting in a change in your status.
Assume that your spouse was already or is presently active in the company, especially in a senior position. In that scenario, the matter becomes even more complex, since they will continue to have a say in day-to-day operations. They may have gotten a share of your stock, at the same time, their position is growing.
The following are two possibilities. First, they sell their shares and leave the business, which immediately relieves stress and can affect the stock price. Second, there are those who can cause office stress that will never go away.
What can you do to prevent this?
What is the best approach to prevent this from happening in the future? Before you get married, safeguard your business and make wise decisions as you go. In addition, consider the following things:
Create a prenup or postnup document.
No spouse wants to acknowledge that the marriage might fail before the wedding. However, if the problem involves significant assets, such as an established firm, facing reality is critical.
A prenuptial agreement or a postnuptial agreement should be signed before or shortly after the wedding to precisely state what happens to the company if things go wrong. The first question to consider is whether the current firm should be included in the marital property, even if one spouse was actively involved in managing it throughout the marriage.
The total value of the company at the time of divorce, as well as any assets definition, is among the other things to consider.
Keep your finances separate.
Don’t use your house as collateral to finance your business. Keep your assets separate to avoid confusion about what belongs to whom later on.
Pay yourself a fair wage.
To maintain a liquid state, many business owners pay themselves a lower wage. The disadvantage, on the other hand, is that if a divorce occurs, there will be more left over to share. If you’re receiving a higher salary, you’ll have less money left over if it becomes necessary to pay a large settlement later.
Set the company up as a trust.
You don’t own the company when it’s placed in a trust. That way, nothing in your name is used in the settlement. However, there are rules in place to prevent fraudulent asset transfers. If you know your marriage is likely to dissolve and you transfer the firm into a trust, your state may declare the transfer invalid.
Get a policy for insurance.
If the divorce settlement prices more than you have on hand, you don’t want to be in a position where you must sell all or part of your business to settle it. Having a whole-life insurance policy that you can cash out might prevent this from happening.
What you have to do if didn’t take any steps in advance?
If you believed that your relationship would last forever and didn’t take any measures to protect yourself when you were married, it’s not too late. There are things you may do.
It’s time to sell your company.
This may be the ultimate answer, as dramatic as it appears. If your former spouse is still involved in the firm due to inventory distribution and this working relationship is untenable, your only choice is to withdraw. Keep in mind that court decisions will allocate the proceeds from the sale of your company equally.
Give up other assets.
If you give your ex-spouse a higher, or the entire portion of, one or more of your other assets, you might be able to keep 100% of your business. Perhaps the family home is more essential to them than it is to you, and it might be utilized as a settlement tool for your business.
Sell a portion of the business.
You may find yourself in a situation where you must obtain immediate money to finalize your divorce agreement. Consider offering a portion of your stake in the firm to existing partners or staff rather than selling the whole thing. You may also try to negotiate a buy-back agreement for a future date.
You may also make payments on a schedule.
You can negotiate an agreement with your ex in which the settlement is paid out over time, often as a garnishee of wages. This arrangement fulfills both your obligations and your company’s interests.
For more on limited companies and divorce see Crisp & Co Solicitors
Divorce is a reality
Unfortunately, not everyone gets the happy ending they deserve. Businesses are dragged into divorce settlements when a marriage comes to an end.
You must plan ahead of time to protect yourself and your organization from becoming a victim of your marriage’s dissolution. Get a pre or postnup. Separate your personal and professional money, and pay yourself a fair wage. Consider forming a company in a trust and purchasing whole life insurance.
However, there are things you can do if it’s too late and you didn’t take precautions. You might sell a portion or the company, sign a contract to offer other assets in exchange for the firm, or make settlement payments over time.