For those spouses who own a business, getting divorced and reaching a fair division of the marital estate can be complicated. A business entity may be a community asset, separate asset, or a hybrid of both. The individual assets and debts owned by the business may be part of the marital estate.
Aside from financial concerns, anxiety and emotional turmoil that a divorce can have a major impact on the business, it can affect the spouse operating the business, as well as other business partners and employees.
In connection with the distribution of assets in a divorce, the business will likely be valued. This will require a business appraiser who will scrutinize the books and records of the company.
Questions will be asked about business practices and expenses. Financial documents concerning the business must be produced, and there is a risk that confidential information may be disseminated.
There can also be a significant cost for the business valuation. Employee hours must be taken away from the work of the business and time must be spent gathering information for the valuation.
There are ways, however, to minimize the impact of a divorce on the business:
First and foremost – get legal counsel. A good divorce attorney will have experience in managing both the personal and business aspects of a divorce, and can provide counsel on how to reduce the impact on the business.
A prenuptial agreement or a postnuptial agreement (entered into after marriage) can predetermine the distribution of assets in a divorce, and thus can protect the business.
If there are multiple business owners, the business partnership agreement or shareholder agreement can address a methodology of buyout or valuation of interest if a divorce is filed against one of the business owners.
If the first two agreements don’t exist, the parties can agree to hire one joint financial expert to value the business which will help streamline the process and keep costs down. To the extent the books and records of the business are well organized and readily available, the valuation will likely move more rapidly.
The parties, counsel and any experts involved can enter into a confidentiality agreement to protect sensitive information and give assurance that trade secrets will not be disseminated.
To avoid the sale of the business, oftentimes a settlement can be structured with payments to a spouse made over time so the business is preserved.
If you are considering a divorce or have been served with divorce papers, contact the Law Offices of Steven B. Chroman, P.C., who can provide you with a pre or post-nup, especially if you own a business. The decisions you make during this process could impact not only your personal financial freedom but also your business’s bottom line.
Contact the Law Office of Steven B. Chroman at 661-255-1800 or visit us at www.chromanlaw.com for a free initial consultation.