A divorce can ruin your business. The damage it will do will depend on who runs and operates the business, or if the business is a family business. The fate of your company requires a lot of diligence on your part.
A prenuptial agreement is the ideal choice for any couple that is getting married where a business is already established. If you’re a lawyer who currently owns his own practice, your best bet before getting married is to have a prenuptial agreement in place.
This agreement would be signed and would dictate that your business is not part of the marriage. Essentially, your spouse would not be able to ask for the business, or their share of the business, in the divorce proceedings.
Businesses Started after Marriage
If you were married at the time that you started the business, your spouse likely has a claim to some of the financial value of the business. In the majority of cases, your spouse will be interested in the monetary value that they deserve from the business.
And this value will vary depending on a few factors:
- What percentage of the business do you own?
- In what way did your spouse contribute to the business?
- Did your spouse sacrifice a career opportunity to help you fund the business or your training?
- How many years were you and your spouse married before and after starting the business?
For example, if you own a 25% share in the business that is valued at $1 million, your spouse can only ask for your $250,000 share of the business. Typically, this figure would be split 50-50, meaning that your spouse would be granted a maximum of $125,000. In the majority of cases, this would be the amount of money you would need to pay to buy out your spouse.
In a few circumstances, your spouse may want to retain their share of the business, in which case they would have some say over the business. If you do not own 100% of the business, you may come into issues if your spouse wants to retain their portion of the business. A good example of this would be that you would no longer be the majority owner of the business, essentially allowing another partner to have control of the business.
For the majority of businesses, it’s better to buy out your spouse so that you can maintain control of the business.
Family-owned businesses may suffer the same fate. You’ll need to come to an amicable decision wherein both of you agree on the business’s fate. You’ll have the opportunity to buy out your partner’s share, or continue to run the business together.
Partners that are the faces of the business may cause your business to lose value if they are no longer a part of it. Always discuss your options with your spouse, and try to form an agreement on business ownership in the event that you get divorced.
The Micklin Law Group, LLC is a New Jersey law firm specializing in Family Law and High-Asset Divorce. Attorney Brad Micklin was recently named to The National Advocates list of Top 100 attorneys from each state. To set up a consultation, call 973-562-0100.