Business And Divorce: Everything You Need to Know to Protect Your Business
When a couple gets a divorce, the division of assets and liabilities is often one of the most contentious aspects of the settlement. Both parties are keen to ensure they get their fair share and avoid any challenging circumstances after the divorce involving your business.
The division of assets can become far more complex if you own a business. A court will likely consider business assets in proceedings even if your spouse does not play an active role in running the company. High profile divorce cases like Jeff and MacKenzie Bezos’ show how business assets can play a part in divorce cases.
As a business owner, it’s essential to understand how your divorce will impact your business and what steps you can take to protect it. To help you protect your company during a separation (even if you don’t think it will ever happen), we’ve put together everything you need to know about business and divorce.
Businesses Are Usually Treated as Shared Assets
In most cases, a divorce settlement will include the value of a business in the shared assets — even if one partner has no involvement in the business. This is because all assets and interests can be considered during a divorce, such as:
- Property
- Savings
- Pensions
- Investments
- Business interests.
The circumstances of each divorce will determine whether a settlement includes business assets. On occasion, a settlement won’t include business assets, but usually, if the marriage is long-standing or there are children, the parties will share the value of the business.
It’s possible that if you owned the company before your marriage, you can argue that it should not be considered a marital asset. But these arguments are rarely successful if the company has created income that has supported you and your partner during your marriage.
Get Your Business Independently Valued
As part of the divorce process, you will need to determine the value of your business. It’s crucial to get an accurate valuation of your business so that the settlement accurately reflects your financial position. While you can falsely report the value of your business, it’s inadvisable as it can invalidate any settlements if later discovered.
For this reason, it’s essential to have your business valued by an independent accountant on the instruction of both parties. The accountant will value your business by considering the following factors:
- Assets
- Cash flow
- Earnings
- Profit.
The depth of the valuation depends on the circumstances of the divorce and how amicable your relationship is. Sometimes a simple evaluation will be sufficient, but some cases — especially high net value divorces — require forensic accounting.
Look Into an Out-Of-Court Financial Settlement
If you and your former partner have an amicable relationship, you may be able to come to a financial settlement between yourselves. You can use mediation or collaborative law to divide your personal and business assets as you please. Providing the outcome is fair to both parties, it’s unlikely a court will intervene.
If your business is your top priority in the divorce settlement, there are several ways to protect it during mediation:
- Buy out — If your spouse has an interest in your company, you have the option to buy them out of the business.
- Offsetting — You can agree to allow your former spouse to have a more significant share of other assets to let you keep all your business interests.
- Maintenance — If your business has low capital value, you may be able to agree to pay your ex-spouse ongoing maintenance.
Plan Ahead To Protect Your Business
One of the best ways to protect your business is to plan ahead by creating a prenuptial agreement before you get married. While it might not be the easiest (or most romantic) topic to broach with your partner, it’s worth considering, as a prenuptial agreement can help protect your business assets.
A prenuptial agreement sets out the terms of division of assets should you decide to separate. This can include money, property and business assets, and the agreement is designed to ensure both parties are treated fairly if the relationship ends. In the UK, prenuptial agreements are not technically legally binding, but due to both parties needing independent legal advice before signing the agreement, they hold weight in court.
If you were already married when you started your business, you could create a post-nuptial agreement. These work in much the same way as a prenup but are created during your marriage. Both agreements can significantly reduce stress, difficulty and legal fees in the event of a break-up. Plus, there’s evidence to suggest that creating a prenuptial agreement can actually strengthen your relationship.
