Divorce is a challenging life event that becomes even more complex as a successful business owner. The separation of assets and responsibilities in this situation can be daunting.
Keeping essential considerations in mind can help you preserve your wealth and your business when you divorce.
Valuing and dividing the business
Determining the value of the business informs an equitable division of property. A professional who specializes in business appraisal can assess the worth of the business. They will evaluate its assets, earnings and potential for growth. If your business relies on intellectual property such as patents, trademarks or copyrights, ensure you accurately value and guard these assets.
When only one spouse owns the business, the other spouse may receive a share if the business owner used marital assets to build the company. The company may also become marital property when business assets comingle with marital assets.
A prenuptial or postnuptial agreement can streamline the divorce process for business owners. These agreements specify how you will divide the company in a divorce. About 15% of couples signed a prenup in 2022 according to the Harris Poll, compared to just 3% in 2003.
Handling business debt
Just as you divide business assets, you will also divide business debts accumulated during the marriage. You should understand the full extent of the business’s financial obligations to fairly divide these debts.
Addressing the future of the business
If you co-own the business with your spouse, you must make a decision about how to move forward. One party may want to buy out the other person, or you could sell the business and divide the proceeds. Some couples even continue to run successful companies together after divorce.
Maintaining smooth business operations helps preserve the company’s revenue and reputation. Ensure minimal disruption by collaborating on decisions about daily operations, management and staffing.
Protecting company finances
Depending on your jurisdiction and the circumstances, the court may order you to pay spousal support. You should understand and address the potential impact of alimony on business cash flow.
Divorce can have tax consequences, including implications for your business. You will need to navigate the potential tax impact on your business’s financial health.
Owning a successful business adds complexity to divorce. Careful planning, professional assistance and a focus on the best interests of both parties can ease this difficult process.