Divorce and Your Business
COVID-19 has shined a light on cracks in all sorts of relationships, both professional and personal. Perhaps you've taken the time to re-evaluate the relationships in your life and found that you don't like what you see. Hopefully, in this evaluation, you've taken the necessary steps towards improving your relationships and the way you handle your own deficiencies and the deficiencies of those around you. An improvement to your parenting and professional conduct will always be welcome and necessary, especially since those relationships are not easily severed. If you find yourself needing to sever certain relationships beyond repair, it is important to determine how that will impact you both personally and professionally.
Divorce is never a fun topic. Ingram Law Firm has provided legal services for divorce for nearly a decade and no matter how amicable or contentious the divorce is, it never is easy. Stakes are high as you reduce your life down to a spreadsheet of debts and assets and get to the task of dividing the same. If you have kids, that is always going to add to the misery of the process to ensure you're doing the right thing for your kids with the wrong person for you. Moreover, if you add the need to evaluate and assess the ownership and value of a business, it becomes nearly impossible. Your business is your lifeblood, you've poured your blood, sweat, and tears into it to see it succeed and now you may have to split running it with a spouse or sell it to share proceeds. How do you handle your business in the setting of divorce?
Evaluate what level of participation your spouse had in the business. Did you run the business daily together with an equal share of responsibility or was your spouse completely hands-off? The answer to this question will make a difference in how the asset is evaluated. Someone who was an equal partner has a stronger argument to maintaining their share of the company over someone who has no interest at all. It may not mean the business is not an asset, it may just be handled differently.
Do you have a partnership or shareholders? If you do, the partners and shareholders' rights also need to be considered. Is there an operating or shareholders agreement that dictates what will happen in a divorce and how the same will affect your ownership in the company. There may be clear buyout provisions that are triggered in the case of divorce where you have no option but to sell your shares to the remaining partners. The ownership of others may dilute any ownership claim of your spouse, which can also help you to keep your business away from the debt/asset division.
Is there a prenuptial agreement that preserves your ownership in the company. This is incredibly important in businesses that were created prior to the marriage. It will clearly outline who has ownership, any payout to the non-owning spouse, and how the asset will be handled so there is little dispute over the company. If the marriage predates the business, a postnuptial agreement can serve the same purpose but are typically less likely to be entered into.
How is the business structured? Are you a dba, LLC, or Corporation? This will affect not only how the business is treated as an asset but will also factor into how it is treated for purposes of debt and income. An LLC or dba will have the owner personally guaranteeing most, if not all of the debt. The spouse may be more willing to waive claim to the asset to avoid being burdened by the debt. Additionally, for purposes of child support and maintenance, the structure of the company will go a long way towards determining what income the spouse receives from the company and how the same is calculated for purposes of support.
What is your long term goal with the company? Is this your forever job that you want to keep and nurture for the foreseeable future or is it a short term idea that you plan to move on from for the next big idea. If it is your long term career, you will want to do more to preserve it. There may be other places where you can give up more to keep the company intact. You also may decide that a short term investment is not worth a fight and give your spouse a portion of the proceeds either now or in the short term future for a sale.
How do your employees and continuity factor into how the business is divided? The Court does not operate in a vacuum and will likely factor in every detail of the business to determine which direction to move in.
Ideally, your spouse does not target your company in a divorce and allows you to maintain ownership and the status quo. In doing so, the Court will step in and look at a multitude of factors to make sure the business is handled fairly and appropriately. It is smart to get all of the pieces of the business in order to have a frank and honest discussion with your spouse, their counsel, and the Court so there is little to no disruption in the flow of business.
Feel free to reach out to Ingram Law Firm for a consultation to discuss the current state of your business and marriage so we can develop a strategy for both.