Top 5 Ways to Minimize the Impact of Divorce On Your Small Business

This article was re-published by Investopedia. You can view it here.

Divorce is always a difficult, financially trying process, but for business owners, it can be an especially costly one. However, there are ways you can minimize its impact on your small business:

1) Gather All Records

As is the case with most aspects of divorce, the first thing you should do is protect yourself. You can protect the fate of your small business by getting organized and gathering all records. You will need to collect financial documents, agreements, bank statements, and all other accounting records that pertain to your company. (Like all other assets, you must know its current value, so you need to obtain a fair, current valuation.)

If your company predates your marriage, there may be a portion that is considered separate property, rather than marital. Be sure to gather documents that support answers to the following questions:

  • Did you start your business before you got married? If so, how much time had passed?
  • How much was the business worth during your marriage?
  • Prior to the nuptials, what were the assets and cash flow?
  • How much did you personally invest into the business prior to your marriage?
  • To what extent was your spouse involved in the business?

2) Understand Your State’s Laws

Division of assets, separate property definitions, and validity of spousal agreements all vary, depending on the laws of the state that your business is in. When your company is at stake, invest time into learning and understanding these laws, so that you are fully prepared for what is ahead.

Seek out an attorney who is an expert in business strategies during divorces. The attorney and the practice’s team should know the ins and outs of this delicate process, and be well equipped to help you navigate it.

3) Consider a Postnuptial Agreement

Stop beating yourself up over the lack of a prenuptial agreement. It may not be too late. If you and your spouse are still amicable (and especially if you are just in the separation stage), consider presenting a written, postnuptial agreement. Though this type of agreement is challenged more often than a prenup is, it may help protect your business—in the event that your spouse changes his or her mind.

4) Arrange for Installment Payments

Should the court rule it necessary, the least disruptive way to split your business is by arranging for installment payments that allow you to buy your spouse out over time. If you and your ex agree to this arrangement, your attorney will draw up a settlement, which details the long-term payment plan for you to obtain full ownership.

Often, as is the case with most installment plans, interest will be made payable to the party owed. During mediation, ensure that you are taking this expense into consideration.

5) Forfeit Other Assets

By the end of the divorce proceedings, the goal for both parties is to have all assets divided fairly. If your spouse and the court agree that your business (or a large portion of it) is a marital asset, then it too will be placed in the division pile.

During proceedings, you may be able to retain ownership in its entirety—if you are willing to forfeit other assets in its place. In other words, in exchange for your business, you are handing over your property and other investments.

Forfeiting assets is not a decision that should be taken lightly. Before entering into the agreement, I advise that you strongly weigh out whether or not the business is worth the price.

My last piece of advice is this: Enter the divorce proceedings with your business hat on. Put aside emotions, and make the best decision for you, your finances, and your company.

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