Going through a divorce can mean that your business is put at risk, so preventing mistakes is crucial! Here are 3 tips to help you protect what matters most to you.
Key takeaways:
- Keep robust financial documentation so your spouse can’t claim a bigger stake in your business than they are owed.
- Never commingle your personal finances with your business finances or you risk your company being considered a marital asset.
- Always engage experienced legal counsel when it comes to divorce in order to protect your business.
When you are getting divorced, you are likely facing many concerns about the legal battle ahead. One huge area of interest that you might not immediately realize can be tied to your divorce is your business. If you are a business owner going through divorce, you need to understand that your company could be at stake. In some extreme cases, you could even lose ownership of your business, have to pay out part of your future earnings, have assets liquidated, or even be required to close your business altogether.
If you want to protect your business through the turbulent time of divorce, our latest blog from Tanya L. Freeman, Attorney at Law, has some tips for how you can avoid common pitfalls. Read on to discover some of the aspects of divorce you need to be concerned with as a business owner and some of the steps you can take to prevent an undesirable outcome.
Mistake #1: Underestimating The Need For Financial Documentation
When you own a business, extensive documentation is key to the longevity of your company’s life. Financial documentation offers a formal record of the financial history of your business, which can be important in a divorce. Without documentation to attest to aspects of your business like spending, revenue, and resources, it is impossible to know how your business interests should factor into your divorce, which can mean trouble for you in the courtroom.
By keeping detailed and accurate financial records, you can demonstrate whether marital assets were used to support your business. In New Jersey, marital property is defined as any asset that was acquired during your marriage, whereas separate property is anything that was acquired before or after (with some exceptions, such as gifts or inheritances). In a divorce, marital property must be divided evenly between spouses, which includes your business if it was founded during your marriage. What’s more, if your spouse in any way contributed to the business, they have a financial claim upon it.
Robust documentation can help you prove whether or not your business is marital property–if you do not have this documentation, your spouse can claim that they have a stake in your business because it was founded during your marriage or because they made financial contributions to it.
If your business is marital property, proper financial documentation means accurate business valuation. In the absence of proper proof, property division might be determined by the valuation proposed by your spouse, which might be inflated to benefit them. Documentation such as balance sheets, profit and loss statements, tax returns, and cash flow reports, provide a more accurate picture of the business’s worth. These pieces of documentation can also cover you against allegations of hiding assets and underreporting income.
Keep your financial records up-to-date in order to keep business operations running smoothly and prevent the risk of having your assets unfairly seized or improperly divided.
Mistake #2: Failing To Distinguish Personal And Business Expenses
When you own a business, particularly if it’s a small business or one that is just starting out, you might think it’s fine or even necessary to use your own personal finances to support the business. However, if you end up going through a divorce down the line, this choice can come back to haunt you. When you commingle personal assets with your business expenses, the business itself becomes a marital asset and therefore subject to division during your divorce.
When your business is considered a marital property, a judge might rule that your spouse has financial interest or even partial ownership of the business. When your business becomes part of the divorce, it can slow down operations and even mean that you have to pay your spouse a portion of your revenue or sign away a part of your business to them. In some cases, you could even be forced to sell your business! In short, the law can make it very complicated for you to run your company efficiently.
In order to prevent your business from being interpreted as marital property, keep detailed financial records, separate your finances in different bank accounts, get credit cards designated specifically for your business, and otherwise make sure the boundaries between your personal finances and your business finances are crystal clear.
Mistake #3: Neglecting To Involve Experienced Legal Professionals
There are many ways professional legal counsel can help you defend your business and reach the settlement that works for you. Here are some of the ways in which the right attorney can help:
- Preventing your ownership stake from being unfairly threatened.
- Working with financial experts to ensure your business is valuated fairly.
- Ensuring your business keeps running smoothly throughout your legal challenges.
- Preventing your business from being claimed as a marital asset.
- If your business is considered a marital asset, negotiating a fair buyout so you can retain your ownership.
- Protecting your trade secrets and sensitive business data.
- Shielding your business assets from debt settlements.
- Valuating any business contributions from your spouse.
- Preventing key business assets from being liquidated.
- Arguing that your future business earnings should not be up for grabs.
- Helping you with the tax implications of your divorce settlement.
- And more!
When you have the help of a reliable legal professional on your side, you have a better chance of shielding your business from the fallout of your divorce. Qualified legal counsel can help you prevent these issues and any other legal ramifications you fear might be specific to your business.
Contact Tanya L. Freeman To Protect Your Business Interests Throughout Your Divorce
Divorce is a turbulent time, but qualified legal counsel can help you protect what’s important to you, including the business into which you’ve put extraordinary time, effort, and financial capital. If you are a business owner going through divorce, Tanya L. Freeman’s legal experience and dedicated service can help keep your business operations running smoothly and prevent legal fallout that could threaten the future of your company’s well being.
Reach out for a confidential consultation and learn more about how we can make an essential difference in your divorce experience.