Divorcing business owners who wish to protect their interests must keep a cool head and take decisive action. One of the greatest challenges is to preserve the productivity of the business, which, after all, may be the lifeblood of the family and its employees. For most businesses, the key issues are: preserving cash flow when new, divorce-related financial obligations arise; stabilizing the management and control of business operations during the divorce process; and planning for the day when the business will be divided (or, more likely, when the owner will have to buy out the spouse). We tackle these topics all the time in my family law practice, and in my book, Frumkes & Vertz on Divorce Taxation.
Three measures may help business owners to deal with the impact of a marital separation and divorce on a family business:
- Take a close look at the corporate governance documents. Refresh your memory about how you acquired the business, what you paid, and how you paid for it. This might determine whether the business will be treated as marital property or separate property. If you own the business jointly with your spouse or other partners, the corporate documents might determine who has control over operations during the divorce process, and who is eligible to obtain information that might be needed to value the business. Look for the stock ledger, corporate minutes, operating agreements, loan documents, leases and other legal instruments. Give copies to your divorce lawyer, who can help to develop a strategy for surviving the divorce process and limiting any interference with the business.
- Make a copy of the financial records and review them thoroughly with your divorce lawyer, bookkeeper and accountant. It may be tempting to hold back information, particularly if it is inconvenient or embarrassing to produce financial records. But if your divorce lawyer is not well-informed, you might fall into a trap. Tax returns are a good start, but detailed general ledgers are more useful. A Quickbooks database can be a gold mine of useful information in a business owner’s divorce. You might also need a forensic accountant to develop a business valuation. Your legal team can craft a plan for.
- Plan for a buy-out. Think end-game: if you had to “buy out” your spouse’s marital interest in the business, how would you pay for it?
Advance planning is always prudent when a business owner gets a divorce. A divorce doesn’t have to jeopardize the operation of your family business if you take steps to prepare prudently. Family lawyers who routinely represent business owners and licensed professionals know how to assist in maintaining business stability and productivity, even while the divorce winds are blowing strongly. In the end, you might find your business becomes even more vibrant when the negativity and distraction of an unhappy marriage is behind you.
For family law help in Western Pennsylvania, call Brian C. Vertz. He has been representing business owners, entrepreneurs, pro athletes, and professionals for more than 25 years. His law firm is a powerful team of lawyers dedicated to family law. In Pittsburgh and Western Pennsylvania, call Brian at 412-471-9000.