Divorce can impact a privately owned business in a number of ways, ranging from the need to buy out one spouse of their interest in the company, potentially forcing the business to take on debt, to ordering management or control of the business be divided or split. Court orders stemming from the divorce can drastically impact the business and how it operates moving forward.
Depending on what other assets there are between you and your spouse, it may be possible to sell or leverage other property to provide them with their share of the equity in the business. With so many complexities and potential consequences, it is best to let an asset division attorney who is familiar with the distribution of different types of property assist you in dividing a privately owned business in New Haven.
Divorces involving business owners are more challenging for a few reasons. For instance, ascertaining the value of the business is a big issue that can lead to a lot of disputes between spouses and the need for substantial expert discovery.
Additionally, figuring out spouses’ incomes and profits can sometimes be complicated, especially when the parties have a business that also operates with cash. That cash may not necessarily be reflected on some of the books or in the tax returns.
Furthermore, when it comes to how the business may or should be divided during divorce, the need to determine whether a change in ownership is necessary or appropriate may arise. This question requires spouses or the court to address who should control the business, whether a person should be bought out, and how successfully accomplish an equitable business buyout.
When the court is considering whether to award alimony, it must try to avoid “double dipping.” This means that if someone is receiving a buyout of the business or half of the business, then it’s probably not appropriate to include the full income from the entire business in their alimony analysis, because they would then be benefiting from both the buyout and the income generated from the full business post-buyout.
In these ways and more, divorces where one or both parties own businesses can be especially challenging to resolve compared to cases involving W2 earners. For this reason, it is advisable to work with a local lawyer when dividing a privately owned business in New Haven.
Using the mediation process to resolve a divorce involving a business is encouraged where the parties have the ability to engage in communication and the capacity to find common grounds. Mediation has the benefit of shortening the divorce process and keeping information confidential versus in litigation where contested hearings and trials allow evidence and testimony to be accessed by the public. Further, one expert can be used instead of multiple, which can help minimize the disruption to the business when having to have it valued and the expense associated with having experts involved.
Business owners going through divorce should be prepared to disclose and share whatever internal documents are requested from the opposing party. If they are using QuickBooks or profit-loss statements, everything needs to be in order so that they can share those documents with the other side as requested.
They will also need to be prepared to testify or be deposed about everything regarding their company, from the nature of the business to its management, operation, profits, revenue, losses, and everything else in between. These disclosures occur during the discovery phase of the case, which can be extremely lengthy and costly.
Business structure agreements may be used to restrict the manner in which a business can be sold or divided. This would limit an individual owner’s ability to dismantle the current ownership structure to allow for it to be divided.
In cases where board votes are required to change the ownership structure of a business, a judge will be less likely to give a portion of control or management of the company to a spouse. That being said, there are many ways for a judge to ensure that the non-business owning spouse is properly compensated for their equity in the company, an example of which may be setting up trusts for the exercise of options.
The assets of an LLC are still going to be relevant and considered as part of the divorce, but limitations or restrictions can be placed on how they are sold or transferred. A buyout or offset of whatever value exists would still need to be accomplished to permit the other spouse who is not part of the LLC to realize their fair share of the asset.
One of the best ways to protect your business from a divorce is to sign a prenuptial or postnuptial agreement. However, if there is no prenuptial or postnuptial agreement in place that protects the company by setting it apart from other marital assets, it is very difficult to remove the business from consideration in the divorce as an asset. This is because whether both spouses or just one spouse is an owner of the business, it is an asset that needs to be properly accounted for and divided.
Regardless of the exact circumstances of your case, you should enlist the help of an attorney who is well-versed in dividing privately owned businesses in New Haven. Call today to schedule a consultation with a legal professional.