Divorce can be an expensive undertaking that drains the divorcing couple’s emotional and financial resources. It can be challenging to think about anything else when going through a divorce.
Suppose you’re like most people in this situation. Your mind might be in such disarray that you’re not even thinking about the long-term future and how it will affect your business. However, if you make sure to protect your business from a legal standpoint, you’ll save yourself from any unnecessary headaches down the road. It’s essential to take steps to protect your business in a divorce proceeding, which you can do by following these five steps:
1. Divide Assets Fairly
When you decide to end your marriage, you’ll need to determine how you want the court to divide your assets. If you’re going to end up with less than half of what you had before, it’s totally up to you. However, suppose both spouses are equal partners in their businesses. It makes sense for an equal amount of assets (including ownership shares) to go back and forth.
Suppose you and your partner own an existing company. You’ll need to determine how much of that company either of you will give up as part of a settlement. You can split up ownership or leave it as is. In that case, you can hire a family lawyer to help you draw up fair legal documents for when you decide to separate. They can also ensure you have all forms of agreements, such as compensation packages and performance bonuses, set before divvying up shares. It can save you from revisiting those issues down the road.
2. Think Long Term
Thinking about how you can divide marital assets can be stressful. Still, it’s important not to lose sight of what matters most—you and your family. Thinking long-term can help you make these decisions with an eye toward how it will affect your family well into the future.
Instead of dividing property based on who needs it most, take steps to preserve ownership until all parties are ready. You might want to avoid selling assets or altering their value in any way. In some cases, transferring assets from one spouse to another is considered improper when divorce is final unless there is a prenuptial agreement in place before marriage.
3. Set Up a Clear Ownership Structure
Setting up a clear ownership structure is one of your most important tasks during divorce proceedings. Generally, if you file for divorce before starting a business with your spouse, you’ll be able to keep it. If you haven’t formalized a structure for your company—who has what role and owns what percentage—you risk losing everything.
As part of setting up ownership structure, have separate bank accounts set up that only fund new projects or purchases made under both spouses’ names. That way, there’s no ambiguity as to which project funded each purchase, and neither party can claim an asset as their own without talking with their partner first.
4. Separate Personal from Business
Your finances are only minimally impacted by divorce if you’ve kept them separated from your business finances. Suppose you’re self-employed and have bank accounts and credit cards dedicated to paying bills for your company. Make sure you keep company expenses separate from personal ones.
Even if you used personal credit cards or loaned money out-of-pocket before marriage, try not to let it all blend once you are married. Keeping records of every cent that comes into and goes out of your accounts can help establish separation during a divorce. If there is ever any question about whether an expense was associated with running your company or with marital expenses, make sure you have proper documentation for all transactions.
5. Use Defensive Documents
Certain documents can be especially tricky to draft in family law, mainly because you have to deal with so many what-ifs and contingencies. For example, what happens if one spouse dies? What happens if you want out of your marriage but your spouse doesn’t? What happens if both spouses want out of their marriage at different times?
It can be tricky even for an experienced attorney. It’s important to create separation agreements and wills ahead of time. These documents ensure less room for error during a separation or divorce and that assets don’t get divided until both parties are ready.
Divorce is always tough, but it can be even more difficult with today’s complex business structures. When preparing for separation or divorce, it’s essential to consider all of your options. Don’t assume that because you have set up everything correctly, everything will be fine during and after divorce.