Why a Divorce May Impact Your Business

Flicker, Kerin, Kruger & Bissada LLP

As a business owner, your personal and professional lives can become intertwined. This means that a change in your personal life, such as a divorce, can seriously impact your business, reshaping your company from its ownership to its reputation. 

The best way to prevent a divorce from harming your business is to understand the risks. Below, we discuss five ways that ending your marriage could affect your business and potential strategies for shielding it from undesirable outcomes. 

Five Ways a Divorce Can Affect Your Business

Divorces can have a particularly dramatic effect on smaller and privately held businesses. Some of the most serious impacts stem from the following:

  1. Asset Division: If you have an ownership interest in a company, it is considered one of your assets. In California, it may be regarded as community property, eligible for consideration during asset division. However, divided ownership between spouses can seriously disrupt a company’s financial stability and organizational hierarchy. 
  2. Spousal Support (Alimony) and Child Support: If your income stems from your business, its revenue may be used to calculate spousal and child support. Using this income to support two households can alter your business’s cash flow and potentially put it at risk of insolvency.
  3. Tax Complications: Taxes for business owners are already complex. Getting a divorce can have significant tax implications and may put an additional financial burden on you or your company.
  4. Legal Disruptions: Divorces can lead to legal disputes over ownership of the company and a division of decision-making responsibilities. This may disrupt operations and make it more difficult to serve clients and customers.
  5. Ability to Focus: Beyond legal and financial concerns, a divorce also takes an emotional toll. You may find that the process makes it harder to focus on your work or consumes so much time that it impacts your ability to run your company.

Any of these issues could strain a company, but multiple could force your business to fail completely.  With the right approach, however, some of these issues can be mitigated or prevented. 

Protecting Your Business Before Divorce

The most effective time to safeguard your company is before ending your marriage. There are several strategies that can help keep your personal and professional finances separate, reducing the likelihood that your marital split impacts your organization:

  • Marital Agreements: You could use a prenuptial or post-nuptial agreement to declare that your business is considered separate property. This would ensure that it is excluded from the marital assets and is exempt from division during a divorce. 
  • Financial Planning: You can place your company in a trust, incorporate it, and maintain separate accounts for personal and business finances to reduce the risk of legal complications during a divorce.
  • Legal Assistance: You can hire a skilled attorney to help you develop a solid plan for protecting your business interests whether you are engaged, happily married, or contemplating divorce. 

Mitigating the Effects of Divorce on a Business

If you are already preparing to end your marriage, you can still insulate your company from the negative outcomes associated with divorce. Strategies to protect your company and maintain healthy operations include:

  • Appoint New Management: You can appoint a third-party director to assist in running the business and making decisions while you proceed with divorce. This will ensure your business runs smoothly and will remove some of the business-related conflicts between you and your spouse. 
  • Set Priorities: Determine what matters most to you in your divorce, then focus on those topics to avoid unnecessary arguments or distractions. This will help minimize the friction between you and your spouse and hopefully allow for time to manage the business.
  • Consider Alternative Dispute Resolution Methods: Collaborative law and mediation are invaluable tools for achieving fair settlements in high-asset divorces. These approaches can reduce the time and expense of a divorce and allow you to prioritize your business operations while preserving your company’s integrity. 
  • Consult Experts: The best way to safeguard your company is to work with a team of supportive professionals during your divorce. This may include skilled high-asset divorce attorneys, financial advisors, and professional mentors. Together, your team of experts can help you navigate any challenges that arise during your split.

Speak to Experts at Flicker, Kerin, Kruger & Bissada LLP

Ending a marriage is not easy, especially when you own a business. At Flicker, Kerin, Kruger & Bissada LLP, we understand the challenges that business owners face when considering divorce. We are prepared to help you achieve the best possible outcome and can assist you with your divorce whether you choose mediation, collaborative law, or litigation. Our attorneys have decades of experience helping California entrepreneurs achieve strategic solutions to even the most complex divorces. Schedule your consultation today to learn more about protecting your business during divorce and how we can help.

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