3 Things to Consider When Pursuing a Divorce When You’re Self-Employed

It goes without saying that emotions run high during the breakdown of a relationship, especially if it’s a marriage. Even when you intend to part on amicable terms, tensions can understandably run high once finances and spousal support discussions get underway. This can be particularly true for those who are self-employed and have worked hard to build up their business and need to protect it. 

The Importance of a Prenuptial Agreement

If you and your partner signed a prenuptial agreement prior to taking your marriage vows, the agreed division of assets and finances in the event of a divorce will already be recorded. Although it often feels very non-romantic to ask for a prenuptial agreement, it can protect the business that you worked to establish on your own prior to getting married, as well as safeguard your income in the event of a divorce.

3 Considerations to Keep in Mind with Divorce as a Self Employed Person

1. Consider a Postnuptial Agreement

For couples that neglected to sign a prenuptial agreement, writing a postnuptial agreement is a worthwhile consideration after marriage, especially when circumstances change. For example, these circumstances often include if one partner starts their own business or assumes a senior management position in an existing business, at which point their wealth and assets could drastically change as a result.

2. Separation of Personal & Business Assets

Self-employed individuals who are considering divorce should ensure that all business information and assets are held separately from their personal assets and that this segmentation is thoroughly documented. Ideally, a separate bank account should be held for the business, and all receipts and invoices for work carried out should be handled through this account. In cases where a self-employed person has used the same account for all of their income and expenses, consulting with a specialist business accountant can provide an independent assessment of their personal and business worth.

If the business operates out of the family home or the business owns property, the self-employed individual seeking the divorce will need to demonstrate how the property belongs solely to the business and that it’s not a shared marital asset. Under New Mexico law, any property belonging to the marriage is considered community property and must be split equally between both partners if they divorce. So, even if your business owns property that does not free it from possible division in the divorce.

Proving that the property is separate rather than community property will require evidence that it was either acquired by the self-employed person prior to marriage and your partner did not contribute to its upkeep or maintenance, or that it was acquired after marriage but is the sole property of the self-employed person.

3. Maintenance Considerations

During divorce proceedings, a judge may order the self-employed individual to make spousal or child maintenance payments to their former spouse. These payments will be based on the ability of the self-employed individual to pay and the demonstrated needs of your former spouse. In a situation where the former spouse is a standard W2 worker with a reliable income, their need for support may be considered less than it would be in the case of an unemployed spouse or one with unreliable income.

The court will take individual circumstances into account when determining what, if any, spousal support payments will be mandated, such as the duration of the marriage, the age of the spouses, and the current and future earning capacity of each individual. Their determination will be based on the needs of the lower-earning partner and the capacity of the self-employed individual to make those payments.

Pitfalls to Avoid

If your divorce turns toxic, a self-employed individual should maintain transparency in all legal endeavors, including being open and honest about your assets and earnings. Only by remaining absolutely truthful will you be able to stave off any attempt by your former spouse to undermine the process by claiming that you are under-reporting income or attempting to hide assets.

Failing to cooperate with the legal process could cast you in a poor light and could adversely affect your ability to exit the marriage in a fair position. You should be clear about what you believe to be personal assets and what is community property that must be fairly distributed between both parties. Documenting and agreeing on this position with your soon-to-be ex spouse demonstrates a willingness to collaborate and work together toward a common outcome. Even if your partner disagrees, writing a list is a good first step in convincing the courts that due diligence is being performed.

At the Law Office of Dorene A. Kuffer, we understand that every divorce is unique and taking your self-employed status is essential to ensuring your divorce is carried out fairly. With our team’s compassionate and comprehensive experience in your corner, you don’t have to do it on your own. Contact us to learn how we can support you today.