Even without business interests, understanding the legalities of a divorce can be complicated enough. For entrepreneurs and business owners, the stakes are even higher. A divorce might threaten personal finances but also the future of a business. So taking proactive steps to safeguard one’s assets is a smart move, and one that can make this challenging time a little easier to deal with.
Business assets in a divorce
Courts normally treat business interests as material assets. They’re subject to the same division in a settlement, regardless of whether the other party actively participated in the business. The rationale being that both partners contribute to the marriage, so any asset required or grown during the marriage may be considered part of the estate.
Marital versus non-marital assets
This distinction is important because only marital assets are subject to division during divorce proceedings. Non-marital assets typically remain the sole property of the original owner. Marital assets include property and income acquired during the marriage; non-marital assets are those owned before the marriage (or received as gifts or inheritances). If your business started before the marriage, generally only an increase in value is considered marital property. Businesses started during the marriage will likely be viewed as marital assets – and therefore subject to division.
Proactive strategies
Pre-nuptial and post-nuptial agreements can help protect a business. These documents specify how assets, including business interests, will be divided in the event of a divorce.
One might also avoid involving their spouse in the business. Sometimes spouses are named for tax or operational reasons, but this can strengthen their claim on the business during divorce. If shares are not transferred, and if the spouse is not appointed as a director, one’s position as the sole owner will be stronger if a divorce occurs.
It’s also important to keep a clear distinction between business and personal finances. All business transactions should be conducted through separate accounts. This is good practice regardless of any possibility of divorce.
Planning for the future
If children are involved in one’s business, it is sensible to have a business succession plan in place. This will outline one’s wishes for future ownership and management.
In a divorce procedure, the court will prioritise children’s welfare and try to ensure they have dependable care, stable housing, and proper financial support.
Seek legal advice
Divorce involving business assets is complex. It’s wise to consult with experienced divorce solicitors who understand both family law and business matters. These professionals can discuss alternatives to litigation, including mediation. Solicitors can help a couple reach more flexible settlements and also avoid public disclosure of sensitive business information.
Having clear expectations about possible outcomes is also helpful. The court considers the future needs and resources of each party. They will look at both short- and long-term needs (whether one party might need certain healthcare or retirement provisions, for example).
If one spouse earns, or is likely to earn, considerably more than the other, they may have to provide maintenance. If career opportunities have been sacrificed during childcare years, the childcaring spouse may receive more financial support.
