How to protect your business if you face divorce
When people get married, they always hope to live ‘happily ever after,’ but many marriages sadly end in divorce. Although divorces are always difficult for everyone involved, they can become that much more difficult when one or both spouses own a business.
Your business is probably very important to you and you no doubt will have spent hours developing it. But did you know that you might be unknowingly doing things that could put your business at risk in the event of a future divorce?
In an ideal world, no-one would start out wanting to divorce, of course. But for business owners, it’s crucial to consider such possibilities if you want to protect your enterprise.
Family Law
Depending on your individual circumstances, your spouse may be entitled to as much as 50 per cent of your business in a divorce. Since it’s probably safe to assume that you will not want your ex-spouse to remain in your life as a business partner, what can you do to protect your business?
There are many things to consider, and here’s just a summary of three potential situations and how you might tackle them.
1. What happens if your spouse is an employee of the business?
It would be safe to assume that as you are thinking of divorce you do not ideally wish to continue to work together. However you cannot simply dismiss your spouse because this will have a consequence to your business and their personal circumstances.
Your spouse as an employee will have rights and specialist advice should be taken on how you would wish to deal with them. This is regardless of what task they might do in the business.
Also if your spouse no longer has a job they will need an income which may have to come form you to support them in the interim.
2. Do I have to sell my business?
Hopefully not! The court however does have the power to make an order for sale of a business, regardless of what is stated in any shareholders’ agreement or in any business papers.
The usual result is that the court will take the value of shares owned by one party or both at the market rate for the business. This will then be considered as an asset of the marriage and will added to the pot for distribution.
Sometimes a business valuation will need to be obtained. However, most matters can reach agreement without a business having to be sold. Here are some examples of how settlement can be achieved without having to sell your business:
- Use your share of other marital assets including cash, stocks, property, retirement funds to help you keep your business.
- Pay them out with a series of lump sums.
- Obtain funding to help you, from the business or other means.
3. Pay yourself a competitive salary
This point is often overlooked. But If you don’t pay yourself a competitive salary and instead reinvest everything back into the business, your soon-to-be ex-spouse might claim they are entitled to more money or a larger percentage of your business.
Their argument might be that they did not derive any benefit and all your money went back into the business instead of the household.
4. Think twice about involving your spouse in your business
All or part of your business will probably be considered marital property. If your spouse was employed by you or your company, helped run the company in any way or even contributed business ideas during your marriage, then they may be entitled to a substantial percentage of your business.
The more involved in your business your spouse was, the bigger that percentage would be. If you have partners in your business, then your spouse would still own a percentage of your share.
Any businesses wanting advice on how a divorce might be handled can call Shane Miller on 0345 20 73 72 8, or email her at smiller@thursfields.co.uk.
