Divorce can be incredibly stressful, affecting nearly all aspects of a person’s life. However, one issue that can often be overlooked is the effect that divorce has on business. After all, the preferred outcome is an equal sharing of assets but what does this mean when one or both of the parties involved own a business? In the worst-case scenario, divorce proceedings can lead to the dissolving or selling of a business. However, it doesn’t have to come to that. There are ways in which you can mitigate against potential issues, before they happen and safeguarding your business and its assets.
Valuation
Divorce proceedings will involve a splitting of assets, in the hope of providing an equal share to both parties. However, when a business is involved, this splitting up process can become more complex. In some cases, the courts will make it easier by giving one party the business, and compensating the other with different assets, but this isn’t always the case.
Should the courts decide that the business in question needs to be split, this raises questions- for example how much is it worth? This will involve a valuation, looking at earnings, shares, physical and non-physical assets etc. This can sometimes seem like an invasive process, particularly when other parties are involved in the company and inadvertently affected by the divorce.
How could this affect the business?
Unfortunately, there are a number of ways in which divorce proceedings can have a detrimental effect on your business. For example, the valuation process can be stringent, involving a complete investigation. Not only is this intrusive, but it can also disrupt the day to day running of the company, which could be damaging to profit and morale.
What happens if you don’t agree with the final valuation figure? For example, one party may feel as if the business has been overvalued in order to overinflate any assets which may be split. It is possible to appeal against valuations, but it can be an arduous process, requiring an investment of time and money.
When it comes to splitting up the business assets, the task can be complex and difficult. There may be pressure for one party to “buy the other out” but this isn’t always possible. Therefore, there is a potential for liquidation of assets or selling the business altogether. Of course, this is the worst-case scenario and there are ways to avoid getting to this point.
Marriage Agreements
We often hear about prenups and postnups, and in this scenario they can be invaluable. Pre-nuptial agreements are made before marriage and post-nuptial agreements are made during marriage. They allow both parties to agree on the specific aspects of a potential divorce, for example the dividing of assets. This provides an opportunity to safeguard any businesses involved, either by removing them as a potential asset or setting out what the other partner should expect to receive in the event of divorce. Whilst these types of agreements aren’t legally binding, they will be taken into account by the court system and therefore place business owners in a much stronger position.
Business Agreements
Contrasting marriage agreements, there are specific business agreements which can also be compiled in order to protect the company. When drawing up business formation documents, you can set out what will happen to the business should one of the partners go through divorce. Again, you can use this to set up details on assets, how much each party gets and protections against the other spouse becoming a partner themselves.
Divorce can have a destructive effect on businesses but there are ways to avoid worst-case scenarios and protect your assets. However, it can be a complicated process, especially for those who are new to the business world. Fortunately, there is help available. Taxation Investigation provide expert forensic accountancy services and advice, including help with divorce settlements.
