24 Feb Divorce Considerations When a Shared Business is Involved
Divorces can be messy affairs. The two single most difficult decisions to make when divorcing are what to do about property and what to do about kids. Some divorces are quite amicable, usually because there is no acrimony between the separating partners. This makes decisions more based on logic than on ego or spite. Sharing kids or a home can be difficult enough, but what happens when a couple have been running a business together?
Businesses must be dealt with like any other property, assuming that one or the other or both spouses own the business outright. Decisions about how to divide property of any type depend on several factors which have to be taken into account before
When was the business set up or purchased?
Like any other property, the time a business was first established or purchased is an important factor in deciding who gets what after a divorce. Basically, any property owned individually before marriage may be regarded as that person’s own property if a divorce takes place. That also applies to a business. That means that any business that was already set up by either partner before a marriage will not necessarily be shared after divorce.
The reasoning behind this is not that straightforward as there may be changes to the business after marriage that could mean that the business becomes ‘community property,’ i.e. viewed as jointly owned, even if there is a disparity between how much of the business is owned by each partner. The business may have grown, for example, by the fact that a new partner contributed to its success, even if the business existed before the marriage. The business may have become more valuable during the period of the marriage.
There is no easy way to assess the division of ownership of a business if each spouse has contributed to its operations during the marriage or because the value has grown during the marriage. If there are substantial points of disagreement about what to do about the ownership of the business it is best to discuss the divorce settlement with a family lawyer experienced in property settlements after divorce.
Was the business established because of a gift or through inheritance?
Gifts of property, or property acquired through inheritance, by one or the other partner in a marriage tend to remain the property of that spouse after a divorce. Business establishment is regarded as the same as property in that respect, bearing in mind that after a business has been acquired by one person, its value may subsequently be affected by the actions of the other person in the same way as has just been discussed about the ownership of a business acquired before marriage.
The value of a business is more than its monetary value
If there is serious disagreement about how to deal with business assets when preparing for a divorce, an accountant may be appointed by the court to evaluate the factors at play. The court will also assess such things as the length of the marriage, how much each partner contributed to the value of the business during the period of the marriage as well as the analysis made by the forensic accountant. The accountant may look at such things as the viability of the business, the amount of goodwill it enjoys amongst its clients or customers, how marginal its profitability is and so on.
Every marriage is unique and so is every divorce. If a couple have jointly owned or shared managing a business, it can be damaging for acrimony to get the better of the business’s operations and success. The faster any issues of contention are resolved, the better the chance of keeping the business going the way it has been doing up to the time of the divorce.