Divorces are often messy. Apart from children, the financial implications are generally the most stressful for both parties.
And while nobody goes into a marriage expecting to get divorced, nearly 50% of them do end in divorce, making it incredibly important to stay prepared for that possibility.
Some financial matters in divorce are more straightforward than others. Liquid assets — cash, stocks, bonds, and checking and savings accounts — will have clear rules that vary by state. Whether you agree or disagree, it is easy to understand how this distribution will play out.
As for your business, unless a prenup was signed, there is a strong chance your spouse will be entitled to at least a portion of it, and this can have major ramifications.
Here is a list of 3 ways your divorce might impact your business.
1. Forensic Accountants
In many divorce cases that involve a business, at least one forensic accountant will be brought in to do a valuation of the company.
If the spouses can not agree on which accountant to bring in, both parties may have to hire independent accountants to review the company’s finances in order to find a usable number for the courts to work with.
This could be an uncomfortable experience since a forensic accountant’s job is to locate all the assets that belong to the company, both public and hidden.
The accountant will do their best to make sure no financial stone is left unturned — everything that belongs to the company will be brought to light for the purposes of asset division.
2. Asset Division
How contentious the divorce is, and what role the business played in your marriage will all have huge impacts on your business assets, so it is hard to say with any degree of certainty how the divorce will affect them.
Here are a few things to keep in mind.
When the business was started plays a huge role
If the business was formed before the marriage, the business owner will be entitled to significantly more of that business after a divorce.
However, regardless of when the business was created, earned income throughout the course of the marriage and any increase in the total value of a business will be considered marital property and could be partially awarded to your spouse.
If your business started while you were married, your full share of it will likely be considered marital property and subject to either 50/50 or equitable splits.
Texas is a community property state. What does that mean?
Community property laws state that all assets and income acquired during the marriage are guaranteed to be a 50/50 split between the couple.
This does not include any assets acquired before the marriage, after the divorce, or through a gift during the marriage. However, all other properties will be subject to an equal split.
If you are the sole owner of the business, it is going to be hard to claim that the assets accumulated during the marriage are not community property.
Putting your business in a trust can help limit the claim your spouse has on the assets that belong to the company and not, in a legal sense, you.
This is most effective when the trust is created before the marriage, but creating one during the marriage will protect a lot of the company’s assets.
Think about trading personal assets for more control over the business
While every state wants asset distribution to be as fair as possible, fairness is generally thought of in terms of the total value, and not simply splitting everything in half.
Trade-offs can always be made in order to keep the most possible control over your business. That could mean giving up the car, the beach house, the primary residence, or any valuable asset in order to ensure your business is untouched.
Your business running smoothly is the best way to ensure you can return to living a normal life after a divorce. You can always get a new car, but your business is irreplaceable.
3. Handling Company Ownership
Depending on how much of your business constitutes marital property, there are a number of different ways to handle your spouse’s monetary stake in the company.
This is the most common option among divorcing couples when some or all of the business is determined to be marital property.
Courts will determine what amount each spouse is entitled to, then if the spouse who wishes to retain their affiliation with the company has the liquid assets to meet the price, a buyout can occur.
If neither spouse wants to divest their shares, then both will be partial owners of the company, and each party’s stake will be determined by the court
This may not be the most attractive option, but if you can not agree to terms of a buyout or co-ownership, or if not enough liquid assets are available to fulfill a buyout, then selling the business may provide the cleanest break.
Contact Our Flower Mound Divorce Attorney for a Consultation
The Julian Firm offers personal attention to people in need of family law attorneys in Flower Mound, TX and the surrounding cities.
Our firm works to help address even the most complex family cases including high net worth divorces and similar cases with complex assets.
Our team of experienced family law attorneys are available for a consult. Contact us today.
When faced with a heated situation such as the dissolution of a marriage, call a lawyer with compassion, knowledge, and experience with the legal system.