It is not uncommon for former spouses to disagree over a family business. Starting up or taking over a company is hard work, and owners that do not protect their companies before spousal disagreements arise may find their life’s work in jeopardy. Even though the U.S. divorce rate is close to 50 percent, many business owners are not prepared. Some states have community property and equitable distribution laws. If this is the case, a former spouse can end up owning half of the company, even if he or she had never been involved in the running of the business.
It Depends on the Ownership
The business in question could have been started up and owned by both spouses; started up by one and then the other became a joint owner; or it could be owned by one spouse, only as a separate property. In the last scenario, the business or a portion of its assets could be considered marital property after years of marriage, especially if its value increased over time.
All marital property can be subject to equal distribution laws. Additionally, it is possible that the court will deem it equitable for the company to pay the former spouse. In some cases, the former spouse may want to become a company partner before the divorce is final, which can adversely impact the company. This could lead to liquidation; the company may be shut down, and the separating couple would split whatever proceeds remain.
These are some of the many reasons why owners of family businesses should prepare ahead for the possibility of separation and divorce.
Safeguarding the Company
Private divorce agreements, property settlements, and “no fault” divorces allow separating couples to part ways on easier terms, without having to face certain state regulations. If the couple can successfully negotiate either before or during the divorce proceedings, a costly litigation may be avoided.
For any business owner, preparing ahead is best. A prenuptial agreement signed before the wedding is quick, easy, and will detail what becomes of the business in case of separation or divorce. If the couple starts up a company after the marriage, a postnuptial agreement can be added to the prenuptial agreement to bring it up to date. Postnuptial agreements in New Jersey can be tricky, so consulting a South Jersey divorce lawyer in these cases is strongly recommended.
Another option is to prepare a buy-sell agreement. These are designed to protect a company if one of the owners passes away or if the company is sold to another party; it also provides protection when divorces occur.
There are other preventative measures to consider, too. If a business owner pays themselves a reasonable salary rather than putting the money into the company, there will be more assets to divide, and the ex could take more money from the business. Provisions to protect the transfer of business shares are also worth considering, before it is too late.
Running a business requires hard work, dedication, and a huge investment on your part. Do not sacrifice what you have worked so hard for if you are facing a divorce. Call us at (856) 512-1461 or complete our online contact form. We represent clients in South Jersey, Camden County, Burlington County, and Atlantic County from our offices in Marlton and Somers Point, New Jersey.