Business Article - Divorce and Your Business
After spending years of your life putting effort into growing your business, a divorce can have a dramatic impact on your company's future. In the worst case, it may be necessary to close your business to come to a satisfactory settlement. In the best case, the divorce will be able to take place without the performance of the company being affected, with the divorce settlement being paid over time through the continuing revenue streams of the company.
Divorce courts typically support the idea of a fifty-fifty division of all assets. This includes any businesses. While this may seem excessive to the breadwinner (usually the husband), if he has been the one responsible for building the company over the years, the divorce court will usually consider the contribution of the homemaker partner as being nearly as valuable in that the homemaker has shared in the personal financial risks inherent in starting a business, and has provided emotional, moral and / or other forms of support which have aided in the development of the company even if indirectly. Even in the most extreme and well argued cases, one is likely to get no more than a sixty percent share of the total assets of the family.
How can someone who dreams of becoming a successful entrepreneur deal with this reality? With more and more people getting divorced instead of staying married for their entire lives, it seems as though the solution might just be not to get married at all if you are concerned about defending your assets. The legal solutions which are available include pre-nuptial agreements - while these are not always iron-clad, a strongly constructed pre-nuptial agreement drafted by a competent lawyer can provide an excellent advantage in the event that a divorce occurs. Many people are put off from the idea of getting a pre-nuptial agreement because they believe that it will offend the person they are in love with. The idea of a pre-nuptial agreement can be a hard sell to your partner, since it seems to anticipate that the marriage will fail, however if the person that you want to marry is truly interested in having you feel secure, you should be able to convince them to sign an agreement that protects your company specifically from being split or factored into total assets in the event of a divorce, or that makes it impossible in a more general way for either party to profit from the dissolution of the marriage. One way that it may be possible to sell the idea of having a pre-nuptial agreement is that, if the company has been an ongoing family concern or if you are building it in order to support members of your family, your responsibility towards them requires you to have the company protected. In this case, even though you are the one who legally owns the company, the company is considered to be something that belongs to the family.
For people who find themselves in a marriage already and are concerned about the possibility that a divorce could split up or end the company, the outlook is not as good. Still, there are ways that the company can be preserved. A post-nuptial agreement is much less common than a pre-nuptial agreement, and if the marriage is currently under stress just asking for your partner to sign a post-nuptial agreement could put on additional strain that could hasten the end of the marriage. Another possibility is that, if a divorce is anticipated, the company can be sold prior to the divorce. This will protect the company itself in that the company will no longer be an asset of the person directly involved in the divorce - all that will be vulnerable during the legal process will be the proceeds made from the sale, and the breadwinner can even continue to play a role in the management of the company (although it may be necessary to help pay for the divorce settlement with part of the management salary).
If a divorce is going to take place and there is no kind of existing agreement in effect to protect the company, there is going to have to be some kind of division of value. The question is, will the division of the value of the company have to result in the company being closed or sold, or will it be possible to keep the company running? One of the first things that the court will want to do is to have the total value of the company and all of its assets appraised. Once the value of the company is determined by the court, the goal will be to come up with an arrangement to split the value which is as beneficial as possible for both parties.
So far in this article we have been assuming that one of the partners in the marriage is responsible for the company, and the other is either solely a homemaker, or contributes to the assets of the family via some other means; however this is not necessarily the case. If both partners in the marriage are involved in the running of the company, then it has to be asked whether it is at all possible for the company to continue running without the presence of both partners. If it is impossible for one partner or the other to be replaced at the company, then it may be necessary to end the company and sell off all of the assets to be divided by the court; the alternative would be for both partners to continue working together after the divorce, but unless the divorce is completely mutual and it is possible for both to continue spending time together in a professional capacity this might not be an option.
If only one partner in the divorce is necessary for the company to continue running, the next question asked is whether the family as a whole relies upon the revenue streams generated by the company. If this is so and if the partner who is involved in the running of the company can be trusted to take care of the responsibilities of doing business and making payments in an honest manner, then an arrangement may be reached where payments are made over the course of several years periodically from the revenues of the business. The advantages of this, besides the obvious one of keeping the company itself running, include the fact that with the costs of selling the assets of a company and paying taxes, the value made from selling may very well not be able to support both members of the family continuing their lives with the same level of financial freedom as before; keeping the company running provides a source of income that adjusts with time and can increase as the business is developed.
Another thing to consider is the way in which the employees of the company will be affected by the divorce. If the staff of the company is close-knit then the divorce of the company owner may have a powerful impact on morale. This can also be a difficult time for the company if emotional issues influence the degree that the owner is able to dedicate himself to taking care of business, and it is important both that the staff is supportive during this time and that the divorcee gets any counseling which is necessary to help during the transition.
These are the issues that one must keep in mind to handle a business while going through a divorce. While the goal of the court is to see to it that both partners in the marriage achieve a fair division of the marital assets, it takes the willingness of the partners to come to a quick and amicable settlement regarding the business if the company is to survive the divorce. In most cases the company will either be sold, or some other means will be found to pay half of what the company is currently valued at. If the value of the settlement cannot be paid immediately, then it becomes a question of whether it is possible to make payments in installments from the profits of the company. Finally, the degree to which the staff of the company are affected by the divorce should be considered, with the owner of the business doing everything possible to keep things running smoothly so that the emotional toll of the divorce does not ruin the company's ability to make a steady profit. The best case scenario for everyone involved, given that the owner of the company wants to keep it running, is that payments are made over time at a level which corresponds to the amount of profit which was shared with the partner previously. This makes it possible for both partners in the divorce to keep living at the same levels as before the divorce, and the owner of the company can continue to reap the benefits of all the work which has been put into it.