Many entrepreneurs start out with high hopes and equally high commitment to the business. When young married couples initiate those fledgling businesses, they oftentimes have no inkling of the strain the business will put on their relationship. Work infiltrates the relationship, dominating conversations, vacations, and other aspects of the marriage. Twenty years down the road, couples may discover that the business has sapped all the energy out of the marriage. Meanwhile, it’s become quite a lucrative endeavor. With no prenuptial agreement to address company assets, how can couples divvy up the company in the event they divorce?
Making smart decisions throughout the life of the business can make things much easier later. If the marriage does fail, how can you maintain the business without your spouse? How much is your spouse entitled to take from the company? An experienced divorce attorney can help with these and other questions.
It is so important to keep business and personal records in two distinctly different buckets! Don’t use company accounts to pay for personal vacations, and don’t make purchases for the business using personal accounts. If a divorce eventually impacts the business, having clean records will make things easier for everyone involved.
Pay yourself a reasonable salary. If you decide to keep the cash in the company to build its value, realize that your spouse will have some claim to that equity in the event of a divorce. If both you and your spouse work together, pay separate salaries based on the contribution of each individual.
Try to Maintain 100 Percent Ownership
As you divide assets in a divorce, sacrifice personal items and try to keep the business all to yourself. Otherwise, you may have to spend a lot more time collaborating with your ex than you’d like to down the road. Many couples find that making business decisions together after a divorce is incredibly difficult. Avoiding that scenario can benefit both parties.
Obtain a Company Valuation
Ask the court to appoint a neutral party to evaluate the worth of the company so you can come up with a fair way to divide the assets.
Make Payouts over Time
If you are going to buy out your spouse’s interest in the business, arrange a payment plan that is based on the company’s cash flow. If that’s not possible, a bank loan is another option.
If you have no other options, perhaps you could consider selling a small stake in the company in order to raise cash for a payout. Employee stock options or third-party investors could provide cash while you maintain the decision-making authority in the business.
Divorce is complicated enough in its own right. If you and your spouse share a business, things can get exponentially more complex. If you find yourself facing these or other challenges as you face the split, having heavy-hitting legal representation can provide peace of mind and positive outcomes for you. At the office of Derek L. Hall, PC, you can count on a team that will fight for your best interests. Contact us in Jackson for a free, confidential consultation today.