Dealing With Business Ownership in Divorce: Strategies From Experienced Divorce Lawyers
The end of a marriage can be an especially trying time, but when divorcing couples own a business together, asset division can be even more complicated. Fear of losing a family business in the divorce process can induce sleepless nights and immense stress.
If you are a business owner going through a divorce, please know that there are various ways to preserve your business so it remains intact and profitable for your future. That said, disputes over shared business assets can negatively impact the strength of your company’s operations.
In this article, we will discuss preemptive measures that can be taken to protect your business, as well as other legal strategies for business owners facing imminent divorce. An experienced divorce lawyer can advise you on how to value and divide family business assets to safeguard your financial interests.
Classifying a Business as a Marital Asset in Utah
Utah law requires a fair and equitable division of marital property in a divorce. In many cases, this includes business assets. A business is considered to be marital property when both spouses are either considered owners or support business operations in some way.
If one spouse owned the business prior to the marriage, and the other spouse had no involvement with the company, it could be considered separate property and thus not subject to asset division. Even so, income earned from a non-marital business is often considered to be a joint asset in a divorce settlement.
Determining whether or not your business is a joint marital asset is not always straightforward. A knowledgeable divorce attorney can review your business history and ensure that the law is adhered to during the process.
Strategies for Protecting Your Business Interests in a Divorce
Divorce brings you face-to-face with many important life issues. When charting a path forward from your marriage, there are certain steps you can take to mitigate the impact of the divorce on your children, finances, and a family-owned business. Stabilizing business assets will help you to remain confident in your future.
Depending on your individual circumstances, there are multiple options to consider when dividing marital property – including a jointly owned business.
A prenuptial agreement
Prenuptial agreements are commonly used to protect business assets in the event of a divorce. At times, a business is established before the marriage. A prenuptial agreement may specify what will happen to the company if the couple eventually decides to divorce.
Additionally, a prenuptial agreement establishes the value of the business at the time of the marriage. It may also set guidelines for how any additional value gained during the marriage may be divided.
The use of a prenuptial agreement can help avoid a conflict of interest from the start. By providing definite rules for asset division in advance, a divorcing couple can preserve their business interests.
A postnuptial agreement
A postnuptial agreement works much the same as a prenuptial agreement and is used when a business is established after the marriage. Such an agreement can designate business ownership, how revenue is managed, and the division of assets and debts.
Both spouses must agree to the terms of the postnuptial agreement. Further, if one partner is the sole owner of the business, a postnuptial agreement can protect the other partner from any outstanding debts the business may owe.
A business valuation
Determining the value of a business is a key factor in fairly dividing assets during divorce proceedings. A professional business valuation can prevent the overestimation or underestimation of the business’ worth, thus avoiding potential disputes.
Financial professionals will consider such factors as real estate, inventory, cash flow, equipment, and other assets. Additionally, the appraiser will assess the worth of intangible assets such as brand reputation, intellectual property, and customer relations when preparing the business valuation.
The company’s debts, liabilities, and existing contracts will also factor into the professional valuation. All of this will help to establish the fair market value of your business so that equitable distribution can take place.
A buy-out agreement
At times, if one partner is particularly interested in keeping the business, he or she may be able to buy out the other partner’s interest in the company. A buy-sell agreement sets the terms for the transfer of ownership interests when one spouse leaves the business.
A buy-sell arrangement can help ensure a smooth transition when one marriage mate is no longer part of the family business. What’s more, this type of agreement prevents a spouse from selling his or her interests in the business without the consent of the other business owners.
When circumstances allow, a cash agreement to buy your partner’s ownership interests in the company can be a straightforward way to keep the business intact. If you do not have the financial resources for such an arrangement, you may be able to negotiate a trade of some kind. Perhaps there are additional marital assets, such as real estate or other investments, that your partner would be willing to take over in exchange for the family business.
When considering various buy-out or trade options for your business, it is important to understand the tax implications of property exchanges. An experienced divorce attorney can help you consider your legal options and ensure a fair distribution of assets.
Spousal support
Spousal support is an option that some divorcing couples use to protect a business. In some divorce settlements, a higher amount of spousal support might be agreed upon in exchange for one partner relinquishing his or her claims on the business.
Under Utah state law, various elements may impact the amount of spousal support or alimony an individual may receive. The length of the marriage, the standard of living during the marriage, each partner’s financial circumstances, whether minor children need support, and other factors will be taken into consideration.
A divorce lawyer can review your personal situation and determine whether increased spousal support is a viable course of action for your family.
A co-ownership arrangement
Co-ownership involves both marriage partners maintaining a shared ownership of the family business post-divorce. This kind of arrangement won’t work for everyone. However, when divorce proceedings are amicable, maintaining your business relationship may be a clear way to stabilize the business despite the end of the marriage.
When choosing to keep the business relationship intact, it is wise for divorcing couples to come to a well-defined consensus as to each person’s role in the company going forward. A legally binding agreement should be drawn up. This will outline each individual’s business responsibilities and how to address and handle conflicts that may arise while continuing to work together.
An asset protection trust
An asset protection trust can safeguard your company during a divorce. This type of trust is designed to hold your business interests, shielding them from potential claims by creditors, lawsuits, and the impact of divorce proceedings.
This strategy involves transferring business assets into the trust, essentially removing them from the owner’s personal estate. Such a trust can offer significant financial protection for your business. Yet, it is essential to set up an asset protection trust well in advance of any legal proceedings to avoid allegations of fraudulent transfer or other forms of foul play.
Furthermore, these kinds of trusts are often used to protect family business assets for later generations. Such strategic planning can help preserve your children’s future ownership interests in the company.
Selling the business
While selling the company and splitting the proceeds can be a difficult option for business owners to consider, it may be the most straightforward way to achieve an equitable division of assets in a divorce.
Selling the jointly owned business allows you to sever financial ties with your former marriage partner. Some divorcing couples find this strategy allows them the funds to pursue individual business ventures.
Negotiation and mediation
Many business owners choose negotiation or mediation to work out a mutually agreeable path for the company following the divorce. The goal is generally to protect each spouse’s interest while keeping the business intact.
While negotiating, the spouses and their lawyers work together to resolve disputes and find a favorable outcome for both business partners. In mediation, an impartial third party is involved to guide the discussions and facilitate an agreement.
These approaches can lead to creative solutions for preserving the profitability of a joint business after the marriage ends. Additionally, negotiation and mediation are often less stressful and less costly methods, resulting in a quicker resolution than traditional litigation.
A collaborative divorce
An uncontested or collaborative divorce can facilitate a peaceful settlement for business owners. This approach allows the opportunity for both spouses to reach a satisfactory agreement without conflict.
When possible, opting for an uncontested divorce has personal and financial advantages. Such divorce proceedings allow the divorcing couple to willingly and amicably sort out their differences and reach an agreement.
An uncontested divorce is generally less expensive and requires minimal court appearances. Further, a non-contentious divorce is less likely to have a negative impact on your business operations and any minor children in the family.
Even when pursuing an uncontested or collaborative divorce, it is beneficial to have knowledgeable legal representation. Especially when a business is involved, a well-practiced family law attorney can advocate for your rights and ensure fair division of all marital assets – including the company you built together.
Contact Seasoned Utah Divorce Lawyers for Assistance
With your family’s livelihood on the line, it is advantageous to carefully consider how you can best preserve your business assets. So come speak to the experienced divorce attorneys at Brown Family Law who are adept at helping Utah business owners navigate the divorce process.
When you work with us, our team will make sure that you know the value of your business and fully understand the various legal distinctions of all marital assets. We will also see that you understand the tax implications of any decisions you and your spouse make regarding your business.
Our empathetic team of family law attorneys is committed to providing outstanding service in all aspects of family law – including divorces involving shared business interests. In every divorce case, our goal is to facilitate a smooth transition for you and your children. We work tirelessly to safeguard our clients’ personal finances and ensure a favorable outcome for each and every one.
With years of experience behind us, our divorce attorneys have an array of proven strategies for protecting businesses when a marriage ends. Please reach out to Brown Family Law for the assistance you need. Call 801-685-9999 or use our online contact form to schedule a consultation. We can move your family forward toward a bright future.
