There are several different things you should do to protect your business during divorce. When a couple decides to tie the knot, discussing divorce and its possible effects to each person both emotionally and financially are rarely discussed.
It’s absurd to think about breaking up when two people are preparing to get married, but it’s still an absolute necessity —especially for entrepreneurs.
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Moreover, many first-time marriages neglect pre-nuptial agreements, assuming that their marriage will last their lifetime. It’s romantic, but not rational. Almost half of all first marriages in the U.S. end up in divorce.
Five Ways To Protect Your Business In A Divorce
In the unfortunate event that you find yourself in family court and financially uncertain about the effects of divorce on your business, there are some things you should know.
Divorce often puts people in a great deal of emotional and financial stress. This stress may make it difficult to understand how divorce affects a business. It may seem easier to just agree on everything to avoid conflict, but that is never a wise decision.
Among the common things that many divorcees forget is to challenge the valuation of their business. It is common for court-appointed valuation professionals to base a business’s value on its 10-year projection of growth or revenue.
How To Protect Your Business In Divorce
This valuation will determine how much you are going to have to pay your ex to buy out his or her business share. This is why it is extremely important for an entrepreneur to have their valuation double-checked by a neutral third party organization to ensure the accuracy and fairness of the valuation given by the court.
If you have business abroad, like Europe for example, you can connect with trusted PEOs (Professional Employment Organizations) like www.bradfordjacobs.com to help you find a neutral third-party business valuation professional.
After agreeing on your business’s valuation, you can then proceed on to buying out your ex’s shares. It may sound like a lot of money you can’t afford, but there are many ways to help raise capital to do it.
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One common option is to sell a minority stake in your business. You can sell ownership stakes to your employees (through stock ownership) or you can get funded by angel investors who are willing to pay you cash. Don’t get frustrated if it doesn’t work out fast — it may take time but it will provide you with enough money to keep your business fueled.
You can use this money to buy out your ex’s share through payment arrangements as you wait for your bank loan or while you wait for your business’s cash flow to be stable.
Another way to protect your business during divorce and get enough funds to pay off your ex’s share is to trade off other assets to get full ownership of the business. You can use equipment, corporate stocks, high-value arts (like paintings), antiques, and other investments you are willing to let go.
How To Protect Your Business During A Divorce
Divorce can take an emotional toll on people, and when this happens, you put your business’s leadership at stake. If you think your marriage is headed towards divorce, it’s best to remove any involvement of your spouse from the company no matter how insignificant it may seem to you.
The amount of time your spouse spends helping to build your company can be used by his/her lawyer to justify his/her shares from the company’s profits. Just fire him/her to avoid more conflicts.
If you know your marriage is headed towards an ugly breakup, you will need to raise enough personal funds to pay your ex a large lump sum of money and/or monthly payments over many years to have full ownership of the business.
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Do take note that you should not take money from your family accounts to fund you or your business’s needs. If you use your family’s finances to build your business a lawyer can use this as a basis for giving your ex more entitlement to the business.
The challenge to prove that your business was never financed by your family’s bank accounts or cash flow can be overcome if you have a good record that proves your business’s and family’s finances are separate.
If you have no other means of income, you can raise capital by paying yourself a higher salary. You can also do jobs on the side and take consultancy jobs or other freelance jobs that will earn you money faster. To protect your business during divorce, you will have to take all of these things into consideration.
Protect Your Business During Divorce: 5 Ways To Do It
Andrew Walker is a senior manager at Brandfordjacobs.com, with extensive experience in global expansion strategies. He has undertaken senior management roles at a range of multinational companies across the UK, where he was head of business strategies. Prior to his current role, Andrew was chief operating officer for a payroll service company specializing in outsourced services to Europe. In this episode of the Modern Divorce Podcast, Billie Tarascio and Paul Deloughery focus on understanding how to protect your assets in divorce. Whether these assets were earned before or during the divorce, there are different processes and procedures required to solidify them as rightfully yours. Watch the video below or read the transcript with timestamps to pick out your favorite start point for the video.
Hi, this is Billie Tarascio with Modern Law and the Modern Divorce podcast. I am here today with Paul Deloughery, a fellow attorney here in Arizona. So excited to talk to you. How are you doing today, Paul?
So excited because we are going to talk about protecting money. And Paul is an estate planning attorney and an attorney who protects wealth. And you know, as a divorce attorney, there’s nothing that is a quicker way to reduce your wealth, then getting divorced and losing half of it. So Paul is going to talk to us about how we might be able to not lose half of it even in the event that there might not be a prenuptial agreements.
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Right. So, yeah, thanks for having beyond. And one of the, one of the things that I’ve just run into a lot is people are not super excited about signing prenuptial agreements. And I don’t know, I think I saw a statistic recently that 17% of people would sign a prenup if asked. Wow. So anyway, so yeah, so there are actual ways of setting things up ahead of time, and it’s better to do it ahead of time, like before you’re married. And so what, why, why do we even do this? I mean well for one in a community property state, and you can go in to a lot more detail about this, but there’s community leans and all this stuff and, and the community property is pretty sticking. It starts sticking to all kinds of things. Inheritance prior, prior property businesses where the, I don’t know where the wife goes in once a week and, you know, helps clean or, you know, as a part-time secretary or, or whatever.
And all of a sudden, you know, she has a claim that she was helping out build the, build the business. So how, how do you, how do you change that? Well, just as a general rule, what you don’t own, can’t be taken from you. So that’s the, that’s the first thing. So there are some ways that you can take a business or asset and put it in, for example, a trust where it’s not in your name, you’re not the trustee, you’re not the beneficiary, but then you want to have some special ways to still be able to control it or get access to it later or make changes. So that’s, that’s the trick. I mean, one of the rules of that, another rule of with asset protection is you don’t want to just protect it, but then never have access to it again.
Right, right. We don’t just want to protect it. So let’s take a minute, let’s take a minute and go over like basic community property concept because it intense. And the idea is that when two people get married, they become one unit that is the community and the community has its own interest apart from each individual. So that sounds like it’s all fine and dandy. But it can get really tricky because it means that any action that you take while you’re married is on behalf of the community. So even if you don’t intend to be building something for the community, because let’s say you started a business, you know, way before you got married and you don’t want to split that. And the general rule is if, if you, if, if you come into the marriage with an asset, then it is your sole and separate property.
Protect Your Family Business During A Divorce
So, all right, anything that is, everything is community, except if you came into it before you were married or it was inherited, or it was gifted to you as, as a, as a human, not as the community, but when those assets grow during the marriage and when community efforts helped any of the assets grow, that’s when the community has an interest. And, and of course for high asset
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