How To Protect Your Business In A Divorce
Divorce doesn’t discriminate. It can happen to the best of us, at any time in our lives. Whether your marriage is young, middle-aged, or old, only one thing’s for sure – it isn’t pleasant.
Unfortunately, none of us have a crystal ball to see what’s going to happen in the future. When you’ve worked hard to build a business, you want to know that your hard work will be protected if the D-word comes onto the horizon. So, what steps can you take to protect your business in a divorce?
Whether you’re on the verge of a marriage breakdown or just protecting your life’s work from what you hope never happens, sound legal planning may be what saves your business:
Agree and sign a binding financial contract
In Australia, these sorts of agreements can be executed at any stage of the marriage, not just at the start or prenuptial. Simply put, it’s an agreement between you and your spouse on the fair allocation of assets.
Separate your business from your marriage
This would need to be done when your marriage is strong – long before any divorce proceedings were even thought about. But by placing your business and its assets into a trust, the owner will be the trust. In theory, this may allow you to keep the business separate from the marriage assets in a court of law.
Pay yourself a good salary
By paying yourself a good wage, you’re not starving the family’s cash flow to build the business – something a clever lawyer could use against you in divorce proceedings.
Separate the family and business finances
Maintain good, clean, records and don’t use the equity in the family home to buy new offices / business assets. This ensures that business and family assets are separated.
Don’t involve your spouse in the running of the business
Keep your marriage and business life separate from the beginning. Doing this will make the lines much easier to define if you ever reached court.
Let your spouse go gently
If your spouse is actively involved in the business but your marriage is heading to rocky terrain, ease them out as soon as possible. The longer your spouse has been involved in the business, the stronger their case that they helped build it and should therefore profit from its growth.
Get a fair valuation
If you do get to court, use the court-appointed valuation professional and also ask for an independent, outside party to review it alongside.
Copy and save everything
Make sure you keep a copy of any financial documents you’ve signed in the last few years, bank statements, tax forms etc. And we don’t just mean electronically. Print and save everything in a file, just in case you get locked out of any joint accounts should it get nasty.
Always be open and provide financial information easily
If you’re now at the point of no return, it’s important that you continue to be open about sharing the business finances with your estranged spouse. Anything else may look like you’re withholding or hiding assets which is something the Australian Family Law Court would frown upon.
Set up a payment arrangement
Rather than hand over a big share of the business, come to an agreement with your ex / soon-to-be ex-spouse. You can arrange for their share of the business to be paid to them in monthly instalments that come from the business’ cash flow.
Guest Post provided by Rose Lawyers and Conveyancers