When going through a divorce, all assets are left up in the air, and one by one, the process sorts each asset and determines when the asset was acquired, whether or not it is marital property (based on the state’s status as an equitable division state or a community property state), and the value of the asset. When the asset is a business that one or both spouses may have a vested interest in, feelings for the business and figures that impact the income of both spouses quickly can get confused with one another.
One of the more difficult assets to value is a business. During the divorce experience, there already are so many aspects of one’s life that are being assigned value and then divided, and when a business’s future and your future income and livelihood is called into question, it can feel personal.
Although every industrial, commercial, and professional business is unique, Forbes magazine suggests that in the context of divorce, evaluations are mostly approached in the same manner. Evaluating tangible assets like inventory, machinery, buildings, etc. can be a very different task, in comparison to evaluating intangible ones like patents, leases, accounts receivable etc.
If the legal proceedings have not begun yet, there still may be time to implement methods of protecting your business during the divorce, according to Entrepreneur Magazine. One of the biggest methods that are suggested is to keep detailed financial records with the finances of the business, separate from that of the finances of the family. This allows the courts to view them as two separate financial entities that don’t interact with one another.
There is a risky maneuver that we, at Men’s Divorce, would not recommend, that many do in an attempt to conceal assets or finances in a divorce: forming an LLC or just a company in general, entirely for the practice of concealment. It is a bad idea that could end up costing you a lot financially and might land you in jail.
Speaking of finances, it’s easy to look at your company’s finances and think that you cannot afford to pay yourself an honest salary, but that may hurt you in the long run. A divorce lawyer may look at that as if the soon-to-be ex-spouse is entitled to more of the company and its assets than they actually are.
Once divorce proceedings are underway, it can hurt your case to work side by side with your soon-to-be ex-spouse. Not only would that be uncomfortable from a personal perspective, but it can give their case legs to stand on, in terms of how much they are entitled to the company, treating it as a marital asset.
Speaking of marital assets, they need to be prioritized. There is no way of retaining all that you want in a divorce settlement, so some cuts in priorities need to be made in order to retain the main ones that you desire. For example, a husband might not fight as hard on a stock he owns if it means he can put more focus on retaining as much of his business as he can.
Factors to consider
Depending on the state, courts look at various factors that go into their final decisions regarding your business as an asset in divorce proceedings. These factors can sometimes make the courts look at a business asset as a form of alimony. Some of the factors include:
- The source of income of both parties
- Whether the party seeking alimony is incapable of self-support through appropriate employment
- The relative education of the parties and the time necessary to acquire sufficient education or training to enable the party seeking alimony to find appropriate employment
- The relative earnings and earning capacities of the parties
- The contribution of a spouse as a homemaker
- The relative needs of the parties
- The standard of living of the parties established during the marriage
- The relative assets and liabilities of the parties
In terms of selecting a lawyer, hiring a dually-licensed attorney-CPA would provide a unique perspective that would allow for the maximum understanding from both a legal and financial aspect. The future of your business and your personal finances are on the line, and hiring a professional that understands both aspects can add value to your case.
Being able to protect your business and your financial future is a lofty goal during a divorce. When assets and finances are being divided, it becomes more and more difficult to protect from your soon-to-be ex-spouse what you wish to protect. Make sure to have the business and assets valued before the divorce hearings begin, so you can set expectations for yourself and the other party, instead of having them set for you. You want to be able to move forward as an individual and as a business owner on your own terms.
Dan Pearce is an Online Editor for Lexicon, focusing on subjects related to the legal services of customers, Cordell & Cordell and Cordell Planning Partners. He has written countless pieces on MensDivorce.com, detailing the plight of men and fathers going through the divorce experience, as well as the issues seniors and their families experience throughout the estate planning journey on ElderCareLaw.com. Mr. Pearce has managed websites and helped create content, such as the Men’s Divorce Newsletter and the YouTube series, “Men’s Divorce Countdown.” He also has been a contributor on both the Men’s Divorce Podcast and ElderTalk with TuckerAllen.
Mr. Pearce assisted in fostering a Cordell Planning Partners practice area specific for Veterans, as they deal with the intricacies of their benefits while planning for the future. He also helped create the Cordell Planning Partners Resource Guide and the Cordell Planning Partners Guide to Alternative Residence Options, specific for seniors with questions regarding their needs and living arrangements.
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