About half of the marriages end in divorce, and some people have more assets to distribute than others. Having business interests makes it more complex. No matter the position in the company, a person can plan for divorce by understanding the major impacts of ending their marriage on their business.
Financial impacts
The financial implications of a business make divorces messier than they already are. Even when the spouses agree on terms, a spouse can claim business interests in divorce. The reason is that all earnings of assets and income from either spouse during the marriage are marital property.
How divorce affects a person’s business depends on the state the couple lives. Nine states have community property laws, which is an even 50/50 split of business assets. Illinois has equitable distribution, so the split should be fair if not exactly equal. The court will decide what each party gets if they can’t agree on their own.
Day-to-day operations impact
Divorce can be an emotionally draining experience, and a business can suffer for it. A person may spend less time at work, which hurts the business. The distraction of the divorce can lead to challenges in the business as well.
If a person is a significant stakeholder of the business, a spouse can become an uninvited partner in the business. Having an ex own a substantial part of the business can throw the business into chaos.
Steps to protect a business
A person should prepare their business for divorce. A prenuptial agreement can sort out business affairs in case of divorce. Entrepreneurs might pay themselves a smaller salary to keep more liquid assets, but that’s more to divide during a divorce. A boss taking a more reasonable salary leaves less money in the business.
In addition, putting a business in a trust takes ownership away. Assets that aren’t in either person’s name aren’t in the settlement.
Businesses of any size get stuck in the middle of divorces. There are steps to take to protect a business during divorce. If it’s too late to implement protections, there are still actions to take. One option is to offer other assets instead of the business. Another option is for a person to sell off shares so that both spouses can make a clean break from each other and safeguard their finances.
