As many studies have shown, couples in which one spouse is an entrepreneur have a high rate of divorce. Whether it’s because the business encompasses much of entrepreneurs’ time or because the non-entrepreneur spouse feels neglected, divorce is common.
While divorce is already a complicated process, generally, entrepreneurs have a special set of considerations when divorcing. As such, it is important to consult your family law attorney regarding the special financial concerns you may assume as an entrepreneur or the spouse of an entrepreneur.
The Equitable Distribution Standard
For starters, as Massachusetts looks at property division in divorce under an equitable distribution standard, marital property and separate property are equally considered. Regardless of whether you started a business before a marriage, during a marriage, or even with an ex-spouse, it is important to know what rights you have in your company and what your company is worth.
When divorcing, family law attorneys will ask their client to bring forth all assets. This is so that property can be distributed equitably. For entrepreneurs, your business may be your biggest asset. In this case, there is a good chance your former spouse would like a portion of your business during settlement. When the divorce proceedings begin, it is important to know exactly what your business is worth. While estimating this number is helpful, disclosing the actual figure can help divorce proceedings run more smoothly.
Appraisal
When having your business appraised, it is in your best interest to have a third party do the work. He or she should not connected with you or the business so that the work can be unbiased. If you have a lawyer, ask him or her if they know of any accountants or business appraisers who could assist in these efforts. An appraiser will be able to effectively run through all of your invoices, books, company property, and other assets. This will allow the appraiser to arrive at the correct figure for the worth of your business.
If you are the ex-spouse of an entrepreneur, it is important that you make certain your business owner ex-spouse is not concealing assets, hiding contracts, or bringing forth a fraudulent appraisal. Is it possible that your ex could be swindling you out of hundreds, thousands, or even millions of dollars? Consult with an attorney to confirm that any appraisal and valuation of the business is valid.
What Comes Next for the Business?
The next step for entrepreneurs is to consider what comes next for their business. As this is likely a valuable divorce asset, a business owner spouse is forced with the decision on whether to sell, retain or split the assets with their soon-to-be ex-spouse. If a business was established prior to marriage, there is more uncertainty about how much money your ex will receive. However, it is very likely that if the business began during the marriage, both spouses will have rights to it. In an equitable distribution state, a court considers many factors. These include length of marriage, educational background, profession, and financial responsibility among other things.
Additionally, if this entrepreneurial venture is a partnership or a closed corporation, it may be necessary to consult the partnership agreement and/or by-laws. These contractual agreements may disclose information pertinent to what occurs if one partner divorces. There could be further cases where a person may want to buy their former spouse out of a business. If you find yourself in this situation, it may be possible to give your former spouse a promissory note. That way, he or she is financially stable after you buy out the business.
Other Considerations
If you and your ex-spouse were in business together, it is possible that a prenuptial agreement or partnership agreement could disclose what business assets are disclosed to what spouse. If this arose in a prenuptial agreement, either spouse can challenge, potentially, the validity of the agreement. A prenuptial agreement may be invalid if a spouse did not have proper time to consult with their own individual attorney when the agreement was signed, or if the spouse signed the agreement under duress, among other possible reasons.
Overall, if you and your former spouse are amicable, working through a divorce for entrepreneurs can be as simple as coming together and negotiating this specific property division. This would be a simpler, less expensive way to get what you want out of a divorce agreement; attempt negotiation before going to court.
Contact Us
Are you looking for an experienced Newburyport or Andover divorce lawyer or family law attorney? If you need more information about entrepreneurship and divorce or about family law generally, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours. We will respond to your phone call promptly.