Owning a business can put a professional in the driver’s seat for their career. They can choose the clients they work with and even control their own compensation. People who run their own businesses can hire their friends and family. The company that they run may become a source of personal pride as well as a source of income.
It is also typically a significant investment and the main source of their income. If the professional running a business files for divorce or their spouse does, then the company might be vulnerable during divorce proceedings. There are a variety of ways for business owners and their spouses to address business holdings when they divorce.
How can spouses appropriately address a small business at the end of a marriage?
1. By balancing out its value
Under equitable distribution rules, both spouses typically have an interest in the assets accumulated during the marriage. Even if only one spouse works at the company or has directly invested in the business, they may both have a shared interest in the overall value of the company when they divorce.
After establishing what the company is worth, the spouses may be able to use other marital assets or debts to ensure that the final property division settlement is as fair as possible.
2. By liquidating equity
A successful business typically continues to generate revenue for years. Therefore, the spouse who owns the business or professional practice could theoretically use the company as collateral for a loan. They can withdraw equity that they can use to compensate their spouse so that they can retain sole ownership of the business after the end of the marriage. Other times, it may be possible to sell certain business resources instead of taking on a loan as a way of sharing at the end of the spouse.
3. Arranging for joint ownership
Some couples are able to maintain an amicable dynamic after they divorce. If they share children or work together, they may be able to maintain a professional dynamic in the workplace. It is sometimes theoretically possible to establish continued joint ownership of the business after the end of the marriage. That arrangement can allow both spouses to maintain employment at the company and to potentially profit from its continued success.
People with complex personal assets often face relatively challenging divorce negotiations. Protecting a business or professional practice requires a measured approach to divorce proceedings that focuses on the best possible outcome.