How Is a Business Divided During a Divorce?

Some of the more complex issues to settle in a divorce (right after custody issues that come from having children together) are ownership issues that come from co-owning a business with your partner. Even more important and more pressing than what happens with the business after the divorce is the question of what you will do with the business before everything gets settled.

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There are two main options for how the spouses can proceed. They can either agree to run the business together fairly and honestly as they have done during the marriage, or one of the spouses may petition the court for full management and control over the business.

Will the Business Survive?

Unfortunately, during a divorce people often make poor choices. When you own a business, especially if you co-own it with your soon to be ex-spouse, those decisions can have dire effects on your financial well being. A business can suffer greatly and sometimes intentionally, due to decisions made by the two parties.

Any decision you or your soon-to-be-ex make that sabotages the business out of spite will most likely lead to a worse financial position in the long run for both of you. Here are some of the ways people do this during a divorce.

Deliberately Tanking the Business

If one spouse has separate income or savings, while the other relies heavily on the business to make a living, the spouse with other revenue sources may make moves to deliberately drive the business into the ground.

They may want to create financial strain so that their former partner can’t afford an attorney. They may also hope that they can use the business’s possible destruction as a bargaining chip in another area of the divorce. In some cases, they may just want to make their former partner suffer.

Fighting Over Operations of the Business

When running a business with a partner, you might not always see eye to eye on every decision. If you have a falling-out with that partner, as in a divorce, you might decide that you no longer care to compromise and start doing things your way. This can lead to large fights over the business with harsh ramifications to the business’s functionality and profitability.

Stealing From the Business

There are many ways in which one spouse might steal from the business in order to improve their financial standing while undercutting that of their spouse. Depending on how involved each spouse is in day-to-day operations, one partner may increase their salary without the other partner’s knowledge, hide sales in secret accounts or through cash transactions, or create fake invoices for expenses, as well as a variety of other techniques.

How to Protect Your Business

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The best way to protect your business during a divorce is if you and your partner can come together and work out a plan to keep the business running as usual. You do not have to let the dissolution of your marriage affect your business partnership during divorce proceedings.

If it is possible to come to an agreement like that with your partner, that’s wonderful. Unfortunately, that is rarely the case. If you are worried about your spouse damaging your business (whether intentionally or not), you should petition the court to gain immediate full control over the business while divorce proceedings are taking place.

According to family law lawyer B. Robert Farzad, being in control over more aspects of your business than your spouse offers a substantial advantage in the event of divorce. Being in control of your employees, clients, and products or services can give you the upper hand during negotiations.

What Happens to the Business When the Divorce Is Finalized?

After the divorce is finalized, there are three main options for how to proceed with the business: continued co-ownership, a buy-out, or the sale of the business. It is always best to have a plan for how you will deal with the business in case of divorce already in place when you and your spouse begin working together. If you don’t, no matter how things go during divorce proceedings, you will have to decide on an outcome for the business once the divorce is finalized.

If you or your partner had to petition the court for full control over the business during the divorce, clearly continued co-ownership is not the path for you going forward. You will be much better off with one spouse buying the other out of their half of the business or selling the business off completely and splitting the profits.

Interesting related article: “How to get divorce papers online.”