Owning a family business is incredibly difficult and unfortunately, not all marriages can handle the strain that comes with owning a family business. It can happen to the best of business owners and taking the steps to ensure that your family business survives through the divorce is incredibly important. After putting in all the hard work and effort, it would be a shame to see it all destroyed by poor planning and emotions that inevitably come up during a divorce.
Beyond thinking in hindsight that signing a prenup was a good idea or proofing your business against a divorce that you couldn’t predict would happen years ago, there are steps that you can take now during the divorce to help save your business from falling apart.
When you start feeling like a divorce is likely to happen, it’s time to improve your record keeping. This is extremely important as documentation is one of your best pieces of evidence in a court of law and showing due diligence now is more important than ever. Even if you feel that your spouse is unlikely to take advantage of the situation, having clear-cut documentation of business operations during the divorce will help with a valuation down the line.
Separate Family & Business
If you haven’t already been doing so, it’s time to separate family and business spending as much as you can. Considering the difficulty of a divorce, taking extra steps to ensure that your personal and business spendings are separate, will help to keep the documentation you’re keeping for the court clear and precise. If you haven’t already, acquire a separate checking and credit account for your business.
If your spouse is involved in business operations, you should do everything you can to separate them from business operations. In a practical sense, this means to fire your spouse from the business. The longer you leave your spouse involved in family business matters, the more prominent their role appears to be and the more your spouse could be entitled to from the business in the divorce. A business should do what they can to remove one spouse from daily business operations to establish a clear ownership with one spouse. This will help prevent the business being divided up messily during divorce hearings.
Experienced Justice Family lawyers from Sydney suggest that during the divorce, you should try to do everything you can to retain full ownership of the company. During the settlement assets are monetarily evaluated, and divided between the couple engaged in the divorce. You should strongly consider giving up other assets to keep full ownership of the business. Commonly large assets disputed during divorce settlements are family homes, cars, and retirement funds. These are all easier to recoup than percentage ownership of your business. This is especially true if you feel that the business still has enormous growth potential and can help replace any lost assets to keep it under your name. If you want to keep working alone and truly separate your spouse from the business moving forward, keep the business under your name only and prevent them from messing with your future business plans.
If during the settlement, you were unable to retain full ownership of the business you can offer a payment plan to your spouse to pay them off and buy them out of the company. This serves two purposes; Firstly, it will help you keep 100% ownership of the business and secondly, it can show a willingness to help support your spouse financially after the divorce while they get back on their feet. This is especially useful as it shows a willingness of good faith and understanding regardless of the emotional nature of the divorce.
Ultimately, your goal during a divorce, if you should like to keep the family business under your name, should be to create a clear picture of your spouse’s involvement in the business, remove them entirely if possible, and ultimately keep full ownership of the business under your name. Divorces are messy affairs, but taking the time to create a clear separation within the family business will save you from headaches down the line.