Divorce and Your Business: Protecting Entrepreneurial Ventures
Going through a divorce can be an emotionally and financially challenging time for any couple. When business assets and entrepreneurial ventures are involved, the stakes become even higher. Protecting your business interests should be a top priority when negotiating a divorce settlement.
Here are some key strategies entrepreneurs can use to safeguard their ventures during this challenging transition.
Get Organized Early On
As soon as you know divorce is imminent, gather all relevant business documentation. This includes financial statements, tax returns, ownership agreements, patents and trademarks. Clear records of your business assets and interests will help your divorce lawyer advocate for your rights. Make copies of everything so you have your own set of documents. Being organized from the outset will give you a head start.
Consider Valuing and Dividing Equity
If you solely founded your startup or have a separate prenuptial agreement, you can retain full ownership post-divorce. However, most courts will consider a business launched during marriage to be community property. Seeking an independent valuation of the equity and dividing it between spouses is often the fairest solution. Your attorney can help determine the best approach.
Transfer Ownership Thoughtfully
For some couples, transferring part or full ownership of a business to a spouse makes sense. But must be handled carefully to avoid later disputes. Consult with your accountant to structure the transfer appropriately. Ensure all legal documents like operating or shareholders’ agreements are updated to reflect the changes. Also, consider buy-sell contracts and insurance policies to facilitate a smooth transition.
Limit Access to Finances
During the divorce process, limit your spouse’s involvement in company finances. Refrain from taking on unnecessary business debt. And carefully review any major expenditures they authorize. You want to avoid assets being depleted before the divorce is finalized. Granting temporary decision-making authority to a business partner or co-owner can help shield current operations.
Be Cautious with Company Perks
Be informed about using business assets like credit cards and expense accounts during divorce. Any discretionary spending could be disputed later as inappropriate usage. Also, take care of compensation choices, company distributions, and other transactions that could benefit one spouse unfairly during the separation. Consult your attorney before making major financial moves.
Create Contingency Plans
During an emotional divorce, some spouses become hostile towards a jointly-owned business—quitting suddenly or making harmful decisions. Develop contingency plans so your company can carry on smoothly—Cross-train employees in case of unexpected departures. Implement succession plans to transition ownership smartly if required. And be prepared to untangle yourself financially if needed.
Avoid oversharing business performance details, proprietary plans, or trade secrets with your soon-to-be ex. This includes inviting them to participate in sensitive meetings. As you legally separate, your spouse becomes an outsider. Follow standard business confidentiality practices to protect your interests.
If disputes over your business assets get contentious, mediation can help avoid ruinous court battles. An experienced mediator can find a reasonable middle ground. They can also ensure discussions stay pragmatic and focused on numbers—not emotions. Messy legal fights can be avoided through mediation.
Move Forward Post-Divorce
Once the divorce is finalized, refocus on the future. Develop new strategic plans, form an advisory board, and adjust ownership stakes. Making a clean break and moving forward will help the business thrive long-term. Consider new investment opportunities as well. With the right strategies, your venture can continue flourishing.
Protect Your Business Interests
Divorcing spouses who own a business together face added complexity. Protecting your entrepreneurial interests requires proactive steps and experienced guidance. Diligent preparation, valuing equity fairly, limiting access to funds, and mediating disputes can help safeguard your business during separation.
With thorough planning, your venture can successfully move forward post-divorce. Contact Dalena & Bosh, Family Law attorneys specializing in divorce, to help you navigate this challenging transition.