When you are a business owner, going through divorce puts your hard work at risk! Our latest blog details strategies for how you can protect your business throughout this process.
Key takeaways:
A high net worth divorce often involves the division of substantial assets, and for business owners, the fate of their business is one of the most crucial considerations. If you are not proactive during the divorce process, you could risk your ownership of the business or lose funds that were secured for your business, setting you back and threatening your success.
At Z Family Law, we always defend the interests of our clients–we know that you have worked hard to build and maintain this business, and we will fight for its protection. Whether you own a family business, a startup, or a significant corporation, your business could be subject to division during the divorce process. Protecting your business interests and ensuring it remains intact post-divorce is our paramount mission, which is why our latest blog offers several key strategies for defending your business in a high net worth divorce. Read on to discover how you can fight back against threats to your livelihood!
In a divorce, the court divides assets into two categories: marital and separate property. Marital property generally includes assets acquired during the marriage, while separate property consists of assets owned prior to the marriage or received as a gift or inheritance. However, determining whether your business falls into the marital or separate property category can be complicated.
If your business was established before marriage, you may have grounds to argue it is separate property. Still, any increase in the business's value during the marriage may be considered marital property. In some cases, the growth and success of the business might be tied to efforts made by both spouses, making it subject to division. Keeping detailed records that show the business’s value at the time of marriage versus its value at the time of divorce is critical for defending its classification.
Keeping personal finances separate from business finances is always best practice. Though it might be tempting to help make up some monetary disparities from your own personal accounts, funneling marriage funds into your business will give your spouse some claim during a divorce. Similarly, spending business money on personal expenses can muddy the waters of what property is marital and what belongs to your business.
Additionally, in order to prove that business expenses are kept strictly separate from your marital property, having clear, well-maintained records proves that you have maintained a clear division and should demonstrate to the court that your business is not an asset up for grabs. Keep detailed financial statements, tax returns, and documents that clearly show the business’s growth and operation during the marriage.
A well-drafted prenuptial or postnuptial agreement can provide clarity regarding the division of business assets in the event of divorce. For example, if you are the sole owner of a business and have a prenuptial agreement in place that specifies the business is separate property, you may have a stronger position in court to defend your ownership rights.
Even if you don't have such an agreement in place, consider drafting a postnuptial agreement after marriage to protect your business. These agreements allow both spouses to agree on how the business will be treated in the event of divorce, offering peace of mind and avoiding lengthy disputes.
In cases where the business is determined to be a marital asset or the other spouse has a claim to a portion of the business, a buyout may be the best solution. A buyout arrangement allows one spouse to purchase the other spouse’s share of the business, keeping ownership intact.
A well-planned buyout agreement should outline factors such as the valuation method for the business and the payment structure, whether in lump sum payments, installments, or through other assets. It's essential to hire a financial expert to value the business accurately and avoid disputes over its worth. Often, the business is one of the largest assets in the divorce, and agreeing on a fair buyout price is critical.
Establish a Business Trust or Holding Company
Consider setting up a business trust or holding company to separate business assets from personal ones, which can help shield the business from claims during divorce proceedings. You can choose a business trust from a wide variety of options depending on your needs for your business, but most options are useful for shielding your business from legal interference.
A holding company, on the other hand, puts your business under control of a parent company through establishing controlling stakes of your business. These measures bring other entities into the equation so that ownership of the business does not exclusively concern you and your spouse, making it harder for the business to be brought into divorce proceedings.
A business valuation expert can provide an impartial, accurate assessment of the company’s worth, which is crucial in a high net worth divorce. They will consider various factors such as income, assets, liabilities, and potential future earnings. The valuation will be used to determine whether the business should be divided or if a buyout is appropriate.
It is essential to carefully select a qualified expert with experience in valuing businesses in divorce cases. The goal is to ensure that the valuation is fair and that the court or the opposing party cannot challenge it as biased or inaccurate.
Work with an Attorney Experienced in High Net Worth Divorce
When you collaborate with a lawyer who understands high net worth divorces and has experience in handling complex business assets, you put yourself in the best position to protect your interests. At Z Family Law, we offer personalized service so that our strategies are tailored to your needs. We value what is important to you, whether that means keeping your business, protecting other valuable assets, maintaining your privacy, guaranteeing time with your children, or some other pressing issue. If you are facing a high net worth divorce as a business owner, we will apply our years of experience to fight for you and your company.
Defending your business during a high net worth divorce can be complex, but with the right strategies and our experienced legal guidance, you can safeguard your business and ensure it remains under your control.
At Z Family Law, we work with you closely to develop strategies that can successfully guide you through high net worth divorce and achieve your goals. If you are ready to get started, we encourage you to reach out to book a free case evaluation!