Divorce is not only personally difficult, it also creates financial and professional challenges when a business is involved. If one spouse is the owner, majority shareholder or a partner with the other spouse, the divorce can create headaches that they must anticipate or address in order to sustain the business.
As it is often the most valuable asset in a household, there is always the potential for a family business to come up during property division proceedings. Divorce can disrupt business if you don’t take steps beforehand to ensure that it doesn’t interrupt the organization’s operations or earnings.
How is property divided during divorce?
As Georgia is an equitable division state, all marital property, including everything acquired during the marriage by both spouses, along with all debt, is divided according to what the court considers to be equitable, which is not necessarily equal. Even in an uncontested proceeding, there may be claims during settlement discussions on what either spouse has acquired or built during the marriage, including the business.
Complications can come up in the settlement if the business owner’s stock in the company has been transferred to the ex-spouse, making them a shareholder or partner. If the ex has a position in the company and remains, things can get uncomfortable for everyone at work. And if the ex-spouse decides to leave and then sells their stock, this can destabilize the business as well.
What options do I have?
In a worst-case scenario, if the business is on the chopping block, selling can release the owner from an impossible situation. Another possibility can be to sell their stock to other partners with a buy-back option in order to save the business from future dissolution.
Alternative choices may be to offer the other spouse an asset of equal value, such as the family home, in exchange for their shares in the business. If the tradeoff still isn’t equal, the business owner can offer to make payments over time to save the business interest.
Although they say hindsight is 20/20, business owners need to always look ahead in order to nurture, grow and preserve the business. This may mean creating a pre- or postnuptial agreement at the very start which spells out the relationship of the business to the marriage, who owns it and what, if any, appreciation will be passed on in a divorce.
Other options the business owner can try are to put the business into a trust, take out an insurance policy on it, or simply keep marital assets separate. These and other tips can save the business owner heartache in the event the marriage goes sour.