Separating a couple’s’ finances when they end their marriage is difficult. Running a closely held business makes it even more complicated and can impede its operations. Taking these steps may help reduce these problems.
Agreements
A prenuptial agreement entered before marriage or a postnuptial agreement executed afterwards can address some of the issues involving business during a divorce. These contracts could expedite distribution and reduce disruption.
Spouses can determine whether any business established before marriage may be distributed if they divorce. They may also consider whether the business-owning spouse reduces other income-earning opportunities by working for that business.
If the business is distributed, the parties can set forth the distribution the non-titled spouse will receive and whether it will be based the value on the date of divorce or its appreciation since marriage. If the non-ownership spouse worked for the business, the couple can decide whether this entitles them to a share and whether they should receive any share of equity if its value increased.
Business valuation is a complicated issue that may be addressed. The agreement should involve an appraisal methodology.
No agreement
If there are no agreements, the business owner can take other steps to minimize disruption and exposure of the business to distribution:
- Keep accurate and detailed records that trace and record capital contributions and their sources.
- Segregate business and personal expenses which will help reduce the cost and time needed to untangle commingled assets.
- Pay market wages to yourself, spouse and other family members for the actual work performed so additional income is not falsely imputed to you.
- Do not spend unreported cash distributions from the business to support a lavish lifestyle that exceeds your actual income because courts may assume that you have a higher income, or you may risk an audit or intensive review of business records.
Minimize disruption
Divorce typically means meetings, court appearances, calls, complying with document requests, business appraisals and possible disruption for your employees. These steps help minimize potential problems:
- Keep one master file on your computer for divorce items, use your personal e-mail for divorce correspondence and take other measures to keep business and divorce matters separate.
- Schedule one time each week for calls and correspondence with your attorney and other divorce advisors.
- Have a well-organized list of materials that your employees must obtain for your divorce.
- Timely respond to requests from lawyers, financial experts and others which will help develop your credibility with the court.
An attorney can assist you with taking measures to protect your business. They can also help protect your rights during negotiations and litigation.
