May 22, 2024

If you own your own business and are in the midst of a divorce or are considering divorce, it’s understandable to be concerned about its future. Businesses do usually form part of the financial proceedings involved in divorces so it’s advisable to know as much as you can about what is involved and how it could be impacted by your divorce.

The impact of divorce on your business

  • Business disruption

Going through divorce proceedings often takes time and energy. You will need to gain all the necessary financial information from your company for full disclosure, including documents such as profit and loss accounts, tax returns, inventory reviews and other details. If you are going to court, you will need to be available at the times specified, and you will need to meet with your legal team to prepare. This can be time-consuming and pull you away from the day-to-day operations within your business.

Your time away from the business can lead to disruption to your business on a number of levels, depending on your usual level of involvement. Your team could feel unsupported, and in some cases, ill feelings could arise. Also, as you will need to have your business valued as part of your divorce, this could lead to your management team or partners feeling unnerved and concerned about the future of the company. Also, if your former spouse was hands-on with the business but decided to leave because of your divorce, this could leave a gap in operations. If both of you remain in the business, there could be underlying hostility that affects the tone of the working environment for other staff members.

  • Closing the business

While the option to dissolve the business is by no means the norm during a divorce it can happen if you are your spouse are both equal partners in the company and if you both agree that this is the only way forward to resolve matters. It may also be the best solution if either one of the partners has been deemed eligible for a large lump sum of the business in the divorce settlement and there is not enough cash available in the business to buy them out. Unfortunately, but not usual, is that the divorce could have had a negative impact on day-to-day operations that your business has ultimately suffered financially and it is no longer enviable to continue.

 

Mitigating the risks to your business

One of the best ways to protect your business now is to get a prenuptial or postnuptial agreement. Although they are not considered to be legally binding, they are often referred to by the courts and providing they are deemed fair, they will be considered during a financial settlement.

A prenup is completed and agreed before you marry and a postnup is for during the marriage. Both are contracts drawn up between spouses to document the specific ways in which matrimonial assets should be divided in the event of a divorce.

Within the agreements, spouses can provide a number of details including: whether or not the business should be considered an asset in the event of a divorce; what share (if any) a spouse will receive; whether the business should be sold and how it should be valued.

As well as prenups and post-nups, it’s also advisable that while you are still married, to keep accurate records of all business capital, ensure personal and business finances are separated as much as possible and that if both spouses work for the company, they are paid fairly at the going market rate.

Exactly how your company will be affected by a divorce will come down to your unique circumstances so it is always advisable to speak to a professional family law expert.