How to Plan for Divorce as a Business Owner

Divorce is a complicated process to maneuver, even if the two partners don’t have many shared assets. However, business owners will have an extra layer of complexity in their divorce, even if your partner isn’t involved in the business. In this article, we’ll discuss how to approach divorce as a business owner, how to protect your assets in divorce, and what to expect so you can start your new life and get back to business as usual.

First, Consider How You Filed Your Business

In the U.S., you’re required to choose a business structure before you can start legally conducting business. The options available to you most commonly include:

  • Sole Proprietorship
  • Partnership
  • Corporation
  • S Corporation
  • Limited Liability Company (LLC)

Depending on how your business is structured, you may have more or less considerations to worry about as you go through the divorce process. For example, those that own businesses as sole proprietors may not have a clear separation between themselves and their businesses, calling into question whether business assets are personal assets, but sole proprietorship can also be the easiest business structure to divide in a divorce. The process can be more complicated when there are multiple “owners” of the business or where one spouse has a significant interest in the business but may not be in full control of business assets or liabilities. Defining ownership and delineating what interest your spouse has in the business can be extremely complicated. What rights you have and what interests your spouse has in the business is highly fact-specific, so consider consulting a qualified divorce attorney for guidance in Santa Fe or Albuquerque.

How to Divide Property in Divorce

In a previous article, we’ve discussed the basics of Community Property Laws in New Mexico and how that can affect what you do and don’t receive or keep through the divorce process. The type of business you have may also determine what is marital property. Generally speaking, however, any assets obtained while married will be considered community property to be divided. While this can be relatively simple in the example of a sole proprietorship, it can get very complicated when a spouse is a member of an LLC and not the only “owner”, thereby calling into question what interests the business-owning spouse has and therefore what interest the other spouse might claim in the business.

When a business was created during a marriage, it will be considered a community asset unless an exception exists. How that business gets “divided”, however, can be multifaceted. In smaller businesses or businesses where the income-generating potential of the business is less important to the owning spouse, it can be as simple as dividing some or all of the assets of the business. Most often, the business owner will want to retain the business without dividing any portion of it, which necessarily means the business will need to be valued and the other spouse’s interest in the business reduced to a monetary figure that can be paid to the other spouse so the owner can retain the business as their own. Everyone’s situation is different and, as noted above, the analysis is highly fact-specific.

Proactive Actions to Protect Business Assets in Divorce

Pre & Postnuptial Agreements

If you own a business and are planning on getting married, you should consider drafting a prenuptial agreement in order to ensure your personal and company assets are kept separate and protected. If you’re already married and missed your opportunity to create a prenup, you may still be able to have a postnuptial agreement created, which would accomplish essentially the same thing as a prenuptial agreement. While you can enter into these agreement at any point after getting married, it’s recommended that you consult with a family lawyer if you’re considering a postnup. Postnuptial agreements cannot be entered into in “anticipation of divorce”, meaning the window to create and enter into a binding contract may or may not have passed, depending on the circumstances.

Properly Organize & Separate Your Finances

If you don’t already have separate personal and professional bank accounts, or separate books where you’re recording your finances, now is the time to do so. Divorce courts will look into all the income sources, shared bills, and household expenses in the relationship, so having your business expenses in another account/book isolated from your personal bills and expenses will help to streamline the process and ensure as much of your company is protected as possible.

Connect Your Business Lawyer with Your Divorce Lawyer

Playing telephone between the members of your legal team when they’re from different law firms can be a headache with much being lost in translation. Instead, consider facilitating a meeting where your two lawyers can connect and exchange contact information. This will require some authorizations that will be discussed with you by your respective attorneys but will allow your attorneys to collaborate and ensure your business is as protected in divorce as possible.

If you are a business owner and are considering a divorce or just wondering how your business can be protected, contact the Law Office of Dorene A. Kuffer to connect with a divorce attorney that will help you every step of the way. Our skilled lawyers have experience in working with business owners and entrepreneurs, so we’ll work with you to ensure you protect your assets in divorce and end the process with the fairest outcome possible. Connect with us today.