It is sad to note, but it is reality, everything in life eventually comes to an end and has to split up. Marriages are the first thing you all think about, and you are not wrong. Once the thing that gave you hope somehow managed to hit rock bottom and now you are in a whole bunch of other problems.
Just last year we had almost 50% divorce rate in the USA, and that is a thing to worry about. Divorces are hard for everyone, kids especially if you have them, but there is that business side that suffers as well. If you started a private business during your marriage, the law is clear on that – everything is divided equally between the spouses.
What is a little more complicated is the situation when one of the partners already had a business before they got married. What happens to a business they both nourished during the time they were in marriage? This article will try and shed some light on that and try and show you options that can help you protect your business during a tough divorce.
So as I previously mentioned there are two things to look at – was the business founded before or after the marriage? If we are talking about a business founded before marriage there is not a lot of legal conundrum here – your business before and can not be accounted for in the divorce settlement.
Moreover, you are protected if you own and operate the business that carries your family name. So, it’s all clear here, if you had a business before marriage the character of those assets does not change after you get married and they are considered as your separate property.
The legal problems start when there is a business on which you worked on through marriage and it increased its value. The legal question here is how to apportion the increase in value between the starting point and where it is now after the marriage period.
It started as your separate property but now after both of you invested, time, money and knowledge in it, it got to a higher value and higher earning potential. In this case, you have to hire experts to do a professional evaluation, and the experts sometimes can be from the business at question (since they know the ins and outs of it best), but usually, they are court-appointed.
Now after everything said there is an easy way to protect yourself from the legal pain and fees that come with this. The one that will come to mind first is a premarital agreement, and this is no surprise. So most of you probably know this but it doesn’t hurt to go over again. The premarital agreement, or prenuptial agreement, is a contract that is drawn to settle disputes between souses. It is drawn before they embark on marital waters, and thanks to it you can control many of the legal rights and obligations that are acquired upon marrying.
Besides this, you have to prepare yourself for an in-depth analysis of your business. It will be torn through up and down to figure out the state of it and to familiarize with details regarding time of the founding, business success from beginning to end as well as its value through the same period. You will have to host an expert that will try and quantify everything you managed to create to that point in time.
You also have to vary of any unusual transactions or unusual activity in that business that might lead on to, or suggest that somebody has been divorce planning. To counter this, you have to operate as if everything is normal. If there is an occurrence or an opportunity that needs you to do something special you should do it but keep in mind that you have to document this as best as you can.
If for some reason you decided not to protect your interests with a prenuptial agreement, don’t worry there is hope for you yet. There are some things you could do to ensure a fair distribution of assets, and here they are.
- Make yourself an only owner of your business, and make sure that paper trails cover that. We cannot stress enough the importance of having everything documented and available if it comes to the bitter end.
- Strictly run your business capital. This means that you have to know where every cent of money went, and you have to know if it was premarital or post-marital cash flow that was used to purchase office space, for instance, or rent or something else.
- Keep your expenses separated. There are two types of these you have to keep in mind – business and personal. You can not mix those two and it would be highly undesirable to have $400.000 of income but have double that as a personal expense that goes through your business. If that is the case your actual income and the value, and evaluation of your business might end up under serious investigation.
- Watch out for the pay you assign. This is more important for the pay your spouse is getting if he or she is working in the company. It is of utmost importance to make your spouse equal to every other worker and pay them according to market rates for the services they provide. If you don’t manage to do this than you could have a situation where the spouse might ask more of the company’s value and could argue that equitable distribution is essential thanks to his or her contribution to the overall value of the company.
Whatever you decided to do you should be well prepared for everything. We always advise hiring professional help, especially when there is a law component attached to the situation. There are a lot of firms specializing in this field, one example is Lawrence Law Office, and they will be a better solution for your problems.
You will get professional council as well as treatment and you will not regret it. They will settle anything from an easy and simple divorce that needs only the eyes of an attorney to those more complex and longer ones, that need a lot of investigation and fact collecting.