The dissolution of marriage, in most cases, influences the conduct and direction of a business. But each case will be different and determining what happens to a business in a divorce will be determined on a variety of different factors.
Contrary to popular belief the business property is not shared between the partners in half. Any divorce occurs equitably and justly after the court makes an analysis of various factors, such as the property value, how it was obtained, the contribution of each partner to the formation and development of a business, and so on. Business can be a financial resource of the spouse or family property.
If the company goes with several owners, the court could have some limitations in the process of property division, since its judgment may damage the interests and benefits of third parties not related to the divorce.
Also, an important factor will be the time when the spouse joined the business. If this occurred before the marriage, then the chances of the division of the share of the business decrease. However, there may be circumstances when a married partner who does not own a business provides financial resources to his or her partner in order to grow the share of the company, even if the company was obtained before marriage.
In this case, the share in the business will be divided into balance, taking into account all participation. Nevertheless, you should not depend on chance and it is right to think about your business’s security and stability in advance.
Property valuation
If you know you are going to get a divorce, you should assess all the property and liabilities of the company, as well as evaluate the share of your partner’s ownership. For some companies, this is quite easy, for instance, if it is a small business company that does not own work equipment or a workshop.
Also, old companies are easy to evaluate, since they have already arranged to accumulate all the vital documentation for the expert appraiser. And here you can use several methods. The easiest way to determine the value of a company is to implement the formula assets minus liabilities.
Assets can be either anything that can be touched, for example, inventory or buildings, or intangibles that cannot be touched like patents. The liabilities cover all sources of debt obligations and borrowed funds. This process is great for small businesses.
Another considerable way is the market approach, in which the value of the assets is determined on the basis of a related business that has already been marketed. The last way of revenue, which uses particular indicators and formulas in order to determine the future revenue of the company, is based on which it becomes possible to conclude the current value of the company and assets.
In any situation, you accept the approach that will be most suitable and convenient for you. This step will assist you in learning what you are risking and what outcomes you may take regarding the dissolution of the marriage.
Sell A Share Of The Business
Of course, a wise and sensible decision would be to discuss with a partner all perspectives of the sale of his or her part. For instance, you can purchase his or her part of the business or other shareholders can redeem it based on a legal agreement.
In particular cases, the sale of a share of a business can have serious tax outcomes. In this situation, a partner of business can discuss with the spouse and choose in favor of consideration by other property for the soon-to-be ex.
The partner leaves the entire business to himself/herself, while the spouse gets the most of the other property not related to the business.
Any judgment can significantly alter the interests of shareholders of the company, so before taking any action the careful analysis of all possible consequences is strongly recommended.
Contingency Agreements
You can add a possible solution in your partnership agreement. That is smart for business security. These provisions should include a list of specific conditions that may occur and clear ways to explain and solve them.
Since divorce is considered an unforeseen situation, as well as death, disease, or disability, it can be added to a partnership agreement. You need to consider carefully such a document and work out all its provisions with a lawyer before signing. In addition, the agreement may include the obligations and rights of the spouses. And to manage their actions in relation to the business if a divorce happens.
A partner’s divorce absolutely affects the company. But the hardness and severity of the outcomes rely on you as well. It makes sense to be worried in advance about the fate of your business and draw up additional agreements with partners before someone’s divorce takes place.
Consider all tough situations in advance and draft special documents that will secure your business. But if it has already happened, be alert and ready for the worst, but expect the best.
How to Protect Yourself and the Company
While it’s sure this type of condition can get ugly promptly, there are steps you can follow to avoid negative consequences:
1. Have frank, early discussions. Keep the lines of dialogue and communication open as the divorce proceeds so that you and the other spouse will know the divorcing partner’s situation at any moment in time.
2. Compensate spouses. Divorcing partners who have played their role in the development of the business are likely to get a larger share of its advantage, especially if she or he distributed labor and time. Always try to pay spouses competitive wages for their work in the case of a divorce because it will undermine their claim that they’re entitled to more.
3. Change from preferred to common shares. If you feel that separation is on the horizon for a partner, you can think preemptively alternating the nature and type of shares from preferred to simple to reduce the transfer of voting rights. This could possibly decrease the value of their profit as it may appear as a discount for lack of control.
4. Confidentiality agreement. As the divorcing partner presents documents about the company, make sure that any information they give is held confidential by all parties. A confidentiality agreement will guarantee that no one in the matrimonial case has the authority to use it for any other plan.
A partner’s divorce will certainly have an impact on your company and profits. Recognize this before you start a new company or if you already own a business that could be unprotected, communicate with your partners today to consider smart measures to secure all of your interests.
