When you get divorced, the fate of your business will depend on several factors:
- Whether the business is considered to be marital property.
- Your actual ownership of the business.
- The role your spouse played in the business.
- Your partnership agreement or shareholder agreement which might make provisions for marital dissolution.
- Whether you had a prenuptial or postnuptial agreement which helps you protect your business assets.
- Your attorney’s negotiation and litigation skills.
- Your own willingness to negotiate, and to treat the divorce process as a business transaction.
Is your business marital property?
New York is an equitable distribution state. This means the courts consider what is fair for each spouse, considering the length of the marriage, the age of each spouse, the role each spouse played during the marriage, and the future earning potential of each spouse.
If you owned the business prior to marriage it may be protected, as it would be non-marital property. Yet you must be careful to demonstrate that the business did not become comingled with marital property. If you took out a second mortgage on the marital home to finance a business expansion or reinvested marital funds into the business then it might not be non-marital property any longer.
Do you actually own the business?
If you launched a corporation then you may be a director and a shareholder, or work for and in the business, but you might not actually own it. Yet you might own controlling shares in that company which could be sufficient to give your ex control over your company if those shares get divided up as marital property.
What role, if any, did your spouse play in the business?
Did your spouse work for or in the business? Did your spouse help get it off the ground? Is your spouse a shareholder too?
If your spouse never touched the business then they might not be able to make a claim on it.
Partnership and Shareholder Agreements
Many partnership and shareholder agreements provisions against divorce by locking spouses out. A well-crafted agreement will ensure that the rights of ownership and control cannot pass beyond your partners or your shareholders.
If you are not already in a divorce and do not have such agreements it is vital to consult with a business law firm like ours so that you can get those agreements locked down and in-place.
The Existence of Prenuptial or Postnuptial Agreements That Protect the Business
These agreements are so important that many partnership agreements and shareholder agreements literally demand that anyone involved with the business secure them. A postnuptial agreement is like a prenuptial agreement, only it is signed after the marriage has already taken place.
If you are a business owner it is absolutely vital for you to get a prenuptial agreement. They are still remarkably rare, despite the incredible role they can play in protecting your assets and your future.
Negotiation and Litigation Skills
If your business is not sufficiently protected by other means then it falls to your attorney to come up with solutions. For example, you might be able to buy out your spouse. Or your spouse may be able to retain non-controlling shares in the business but give up any claims of management. Phased buyouts are also an option. In some cases you may be able to give up other things your spouse wants more, like spousal support payments or control of the family home, in order to keep full control of your business interests.
We start with a professional valuation, and evaluate what we can offer in light of your other assets. We look for bargaining power to help you maintain control of what you really care about.
The absolute worst scenario is having to sell your business and split the proceeds with your spouse. We try to avoid that one, as it devalues all of your hard work, to say nothing of an asset which could continue to support you for many years to come.
We are both family lawyers and business attorneys, and this gives us a unique perspective on these issues. If you need help protecting your business, don’t hesitate to call and make an appointment today.
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