How to protect your business in a divorce
Divorce is always an ugly business. And it gets even harder when your brainchild is involved in the process.
If you’re wondering what you can do to protect your business in divorce, the answer is simple: get it covered BEFORE you actually tie the knots. Although somehow insensible, a prenup agreement is the best way to decide who gets what right from the start and avoid much of a hassle, emotional burnout, and unexpected financial losses.
Nevertheless, when vows and wedding planning are at their height, discussing divorce details can be at least weird. Neither do couples think of covering their backs with a prenup. But in fact, they should be – as over 50% of all first-time US marrieds-to-be end up as divorcees that can be really bad for the business.
If you happened to be one of them, don’t rush to give up your business. There’s still something you can do to win it over.
Double-check your business valuation with a third party
Divorce can be extremely stressful both emotionally and financially. In such circumstances, it’s hard to think of business as of the top priority. It may also seem the best to meet all the ex’s demands just to get rid of the tension sooner. But hardly ever this is a reasonable solution.
Among such blunders can be the failure to double-check the business valuation made by the court. The thing is that court-appointed valuation experts often use outdated information, which is not necessarily relevant in your situation. If you decide to buy your former spouse’s share, this valuation will determine how much you owe to pay.
Are you getting it? When it comes to paying money out of your pocket, you do want to know the real value of what you are paying for. Therefore, keep in mind to double-check the result with an unbiased third-party expert of the firm.
Buy out business share from your former spouse
Once you know the real cost of your business for sure, you can consider redeeming your ex’s share in it. And before you think you can’t afford that and give up the idea, think of a few ways how you can actually collect the necessary amount.
For example, you could sell some of your shares to employees. Or find a private investor who would give you the money. Don’t expect it to be fast or easy – it WILL take some time – but this is what it takes to protect your business from tearing apart.
You can use these funds as a backup and buy out your shares again when the business starts bringing higher income.
Give in other assets in exchange
One of the ways how you can protect the work of your life from splitting is by offering something in exchange. This may be something of the equal value or an emotionally precious thing. Consider what assets you will be willing to give up. A house? A car? Art pieces? Or perhaps, your family relic that was so dear to your ex?
This is the time to decide what matters the most to you: your business or other marital assets? You may decide that you’re quite capable of growing a new business from scratch. This is an option too.
Bring your ex’s part in business to minimum
Divorce can rarely be unexpected. Normally, there are plenty of early signs that give you a clear idea that the end is nigh. And as an entrepreneur, it’s in your best interests to detect them ASAP and take certain measures.
So once you feel that divorce is unavoidable, make sure that your spouse takes a long leave from their responsibilities. The least you want that the attorneys of your ex found a loophole and proved how important her/his role was in the profits of the company. Because if they do, it can be a solid ground to bite off a good share of your business.
Build a solid rainy-day fund
Clearly, the best way to protect your business during divorce is to have a reliable backup fund just in case. Whether you expect to get divorced or not, it’s good to save money as a habit. This way you’ll have money to keep yourself and your business afloat if things go extremely ugly.
As a boss, you may cheat a little bit and assign a higher salary for yourself. As an option, you can try different odd jobs every now and then and invest this money into growing your own business.
Only make sure that you don’t borrow money from your family fund. As if you do, your ex’s attorneys may use it as strong evidence to win more rights for the business. To prevent that, make sure you have clear proof that your business capital has nothing to do with your family savings.
Bottom line
Getting full ownership over your business after divorce isn’t easy. It always requires some sacrifice: money, time, or other valuable marital assets. However, if you’re filing for divorce in Wyoming or any other state that follows equitable property distribution laws, getting your business in full may be just a matter of carefully done records. If you can prove that your spouse didn’t have a hand in growing the business, most likely you’ll get it without a fight. However, even so, we recommend you to think about what you’ll be willing to give up in return.