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What Business Owners Need to Know About Divorce

What Business Owners Need to Know About Divorce

Everyone goes into a marriage, believing and hoping for a happily-ever-after. Unfortunately, this is not always the case, and some marriages end up in divorce. The divorce process can be both physically and emotionally draining. On top of all the normal stresses of divorce, business owners have to consider how their divorce will affect the future of their company.

Remember, information is power. To protect your business from divorce consequences, it is best to be informed on how businesses are affected by the divorce process. Here are some key things you should consider as a business owner that is experiencing divorce.

Is Your Business Considered Marital Property?

One of the biggest questions for couples going through a divorce is who has the right to keep the business or whether one spouse is entitled to a share of the business. To determine this, you will need to consider whether the business is a marital asset or a separate asset.

New Jersey is an equitable distribution state. This means that any property or assets acquired during the marriage are subject to division between spouses. If your business was created before your marriage, it is separate property, which means you will remain the sole owner of it after the divorce. However, if marital assets were used to increase the value of the business it could be seen as marital property.

For businesses created during a marriage, then it is considered marital property and your spouse could receive a share of it in the divorce. Many factors determine how the court will make this decision. For example, the court will examine you and your spouse’s involvement with the company which could impact their decision on how to divide business shares between you and your spouse.

Establishing whether your business is marital property or separate property can be highly complicated. However, a Charlotte divorce lawyer can help determine how equitable distribution will impact the future of your business.

Do You Have a Prenuptial or Postnuptial Agreement?

If you have any formal agreement before marriage (prenuptial) or after marriage (postnuptial), you are in a better position to simplify your divorce process. These documents come with a guideline on how assets will be valued and divided between spouses in the event of a divorce.

With a prenuptial or postnuptial agreement, provisions can be included on how your business is to be run following a divorce. Therefore, if your agreement says that your business is your separate property with no possibility of division, then there is no need for prolonged, intrusive, and expensive valuation of the company.

What if You Do Not Have a Contract in Place?

Without a formal contract, it can be more challenging to handle divorce as a business owner. However, this does not mean that there are no remedies to protect your interests in the business.

Here are some things you can do to protect your business from divorce:

  • Keep documents that prove you are the sole owner of the business. The papers should clearly say that your business is not transferable in case of a divorce, but a cash award can be given to the other partner.

  • Always have records that show the specific source of capital in the business. Do not wait for your partner to claim that any money used to set up the company before or after marriage was shared between you two or was paid by them.

  • Your personal and business expenses must remain separate. Mixing them up might interfere with the valuation of your business in the event of a divorce.

  • Make sure you keep all business financial records clean and adequately documented, including cash transactions.

  • Remember that the amounts you pay yourself from the business should be consistent with the market standards for the same position. If you do not, there are consequences of this inconsistency. For instance, if you usually pay yourself $100,000 and the market rate is $250,000, your spouse may apply the $250,000 pay to determine the amount you will provide as support.

  • In case your spouse works for you in the business, offer them a salary that is equivalent to the market rates. If you don’t, your spouse might demand a bigger share of the company since they provided their services to the business. They will count it as adding value to the business after marriage.

Obtain Caring, Capable, and Comprehensive Representation

Since divorce is an emotional experience, avoid making any decisions based on your current feelings. Making emotionally fueled decisions can lead to regret later when it is too late. Instead, turn to a skilled Charlotte divorce lawyer that will protect your best interests. At Rech Law, our team will carefully examine the details of your business and create an effective solution to reach your goals in your divorce.

Call Rech Law today at (704) 659-0007 if you are a business owner and would like to discuss your options regarding your business and divorce.

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