Running a business and going through divorce have one thing in common: they can both be very difficult. But when you own a business and are going through a divorce it can further complicate things. So, while most people don’t go into a marriage thinking that it will result in divorce, planning for the possibility of one can sometimes make a big difference when it comes to protecting your business, which is often the most valuable asset that you have.
The state of Virginia follows an equitable distribution method for dividing up property in a divorce. Equitable distribution means that the courts will fairly divide the property. While this could mean a 50/50 distribution it doesn’t always. It all comes down to the relevant factors. Such factors include:
- Length of the marriage;
- Contributions of each spouse;
- Age of each spouse;
- Physical and mental state of each spouse;
- Types of assets;
- When the assets were acquired;
- How the assets were acquired;
- Tax consequences;
- Reason for divorce; and
- Anything else the court finds relevant.
While you can’t go back in time and change what has occurred, the sooner you take certain steps to protect your business, the better. Here are tips for protecting your business in the event of a divorce.
1. Form a separate business entity or place the business in a trust.
Is your business registered as a separate entity from you? Forming an LLC, corporation, or the like helps to separate your business from you personally by making it its own entity with its own assets. In the same vein, placing your business in a trust can also help to protect it from equitable distribution during a divorce. One of the most important things in maintaining the business as a separate entity is to avoid using any marital assets to pay for business expenses.
2. Leverage marital agreements.
While they often get a bad rap, prenuptial and postnuptial agreements can be extremely beneficial for both parties. You can use these agreements to establish the terms for property division in the event of a divorce and can even expressly provide that certain assets, such as any businesses, may not be subject to equitable distribution. In fact, you can lay out all of the assets you own and how they are to be distributed, leaving the court out of determining this.
3. Don’t have your spouse involved with the business if possible.
The more involved with the business your spouse is, the more likely your business is to be deemed marital property, in which case your spouse would be entitled to a portion of it. Therefore, it’s best to keep your spouse from being employed or even managing any aspects of the business.
4. Decide which assets you’d rather give up.
As mentioned, equitable distribution doesn’t always mean a 50/50 split of assets. So, if you know that you want to retain full ownership of your business, it’s imperative that you consider which other assets you would be okay with sacrificing. This may include things such as real estate properties and retirement assets.
5. Give yourself a competitive salary.
It may seem counterintuitive to what is best for the business, but it’s in your best interest to pay yourself a competitive salary from the business. This is because if you reinvest all profits back into the business, it may make it easier for the other spouse to argue that the business is marital property that should be split. This is because if you didn’t take a competitive salary, it can be argued that you didn’t contribute to finances for the family as you would have otherwise and that your spouse therefore did not benefit from the business, but should now.
Hopefully, you will never have to deal with a divorce or equitable distribution of property. But should you ever, you’ll be glad that you planned so carefully to prevent the courts from giving away your business.
Surovell Isaacs & Levy PLC Can Help Those in VA to Protect Their Businesses
The sooner you are able to take the steps to protect your business, the less likely your spouse would be to receive a share of it. That’s why it’s so important to speak with a business attorney as soon as possible. At Surovell Isaacs & Levy PLC, we have experience with both business and family law. We will help you to fight for what it is that you deserve. To learn more or to schedule a consultation, contact us today!
Posted in: Divorce