Business is a player in divorce

On Behalf of | Jan 26, 2021 | Divorce

Although spouses may not bring their work home with them, their business interests may be part of their divorce settlement. Precautions can help protect your business interests in a typical or high asset divorce.

Impact

Business may be part of property division in California. If you are a substantial shareholder, your spouse could obtain a large portion of your stock or become an uninvited and disruptive partner. Your interest, and your status and role in the business, may be diminished.

This situation becomes even more complicated if your spouse was involved in the business or still plays a role. That spouse can still participate in daily operations with you. The soon-to-be former spouse can improve their position if they receive part of your stock.

Two things happen when this occurs. The business and the stock price may be affected if the spouse sells their shares to reduce tension. Or there may be continued tension if they stay.

Options

Couples can protect their business and other assets with a prenuptial or postnuptial agreement. These agreements can govern whether and how the business is divided and its  valuation.

Collateral in your home should not be invested in your business. Commingling assets makes them vulnerable and causes confusion.

A reduced salary improves liquidity but leaves more of your money available for division. A higher salary leaves less money available for a settlement agreement.

Putting the business in a trust takes away your ownership of the business and removes it as a marital asset. But this must be done professionally because there are laws prohibiting the fraudulent transfer of assets.

Obtaining a whole-life insurance policy may also protect your business interest if your settlement costs more than you have. Instead of selling your business interest, you can liquidate this policy.

Plan B

You still have options even if you did nothing. You can sell your business to block your spouse’s participation. But this provides more money to you which can be allocated to your spouse in a settlement.

You can offer other assets in return for keeping all your business interests. Your home, for example, could be used in this negotiation.

If you need cash for your divorce settlement, you can offer part of your stock to your partners or employees. A buy-back agreement may restore your interests in the future.

Finally, you can try to pay your settlement over time. It would allow you to keep your interests and commitments.

Divorce can also divert a spouse’s attention from daily operations because of stress and the time involved with meetings, obtaining and submitting documents. An attorney can help provide options to protect your interests.