How does divorce affect your business?

How does divorce affect your business?

You have been married for a long period of time and now you have decided with your partner/spouse to go your separate ways. What happens to the business? Will you be forced to sell the business to settle up with the partner?

If there is no prenuptial agreement, the assets of the spouses are generally split into two. If the business is worth a lot of money, the primary spouse involved in the operations of the business may not be able to afford to buy out the other partner. What happens, do you have to put up the business for sale? Can you borrow from the bank to buy out the other partner? Do you need to bring in another partner to help you buy out your spouse? These are all items which can have a significant negative effect on the business. What happens if both are involved in the business, who stays, who goes?

If the company was very profitable and one spouse has to borrow on the business to buy out the other, there could be a lot of new debt which then makes the cash flow of the business potentially very difficult. It is possible that the partner with the business goes from a good lifestyle to a person left is scrambling to make a living or a person with cash flow and a fraction of the assets which they just had. If they have to provide spousal support payments as well, the cash flow of the remaining partner could be dramatically reduced.

Many spouses try to downplay the assets in order to settle with the spouse. In the end, you end up paying lawyers large amount of fees but for what reason? Are you further ahead? It depends on the size of the assets that are in question. The more that you have, the more that someone may hide. Some of the wealthy have assets all over the world and were always hidden from the spouse. They were protecting themselves from day one. For the normal person, they may have a house, a small business and nothing else. It now comes down to valuing the business and going forward.

In those situations, one one party is paid out more, one ends up with more cash, the other less but still has the business. Hopefully this does not strap the company too much so that the party left over can function and carry on the business without having to sell the business.