One of the most challenging elements of divorce is untangling a couple’s assets to arrive at a fair and equitable solution. This is more complicated when one or more businesses are involved. While all judges are different, they generally do not like to divide a company in a divorce because these arrangements seldom go well. This can be because the parties do not wish to be in business together, or the business is a source of dispute due to valuation or management.
Unless there are binding prenuptial agreements in place, the issue of the business’s value will likely need to be addressed and measured against other marital property.
Advantage often goes to the spouse running the company
Judges can determine how to divide assets, but they cannot control or rule on how to operate a business. This means that the businessperson can shift numbers around in their favor. For example:
- They can withhold paychecks during the divorce process so that income does not become marital property.
- They can delay lucrative deals that push up the value of the business until after the divorce is final.
- They may file for divorce during a seasonal downturn in the business cycle, thus undervaluing the company.
There are, however, certain risks
Business owners are like anyone else and may not be able to focus on the business or motivated to keep it afloat. This may be because of the divorce has them worried about family matters like custody. Moreover, the non-owner spouse can strategically plan to file after a very good year, knowing that the company would have a higher than average value.
Knowledgeable attorneys know where to look
Attorneys often work with small and medium-sized business owners and their spouses. This gives these legal professionals insight into recognizing misleading numbers, operational misdirection and other attempts to hide or minimize the value of assets. This can mean a big difference in the value of the couple’s fair and equitable division of property.