Avoiding the “double divorce”

According to the U.S. Census Report, there are roughly 3 million businesses in the U.S. that are co-owned by spouses. But if there’s no written agreement and the marriage ends up in divorce, the business could end up as collateral damage. A breakup of a marriage is one thing. But a breakup of a business, too? That’s even harder. Many feel as though it’s like going through a “double divorce.”

That is why most legal and financial advisors strongly discourage spouses from entering into a business arrangement with each other without a written document that has been vetted by experienced attorneys who can troubleshoot it for you.

So I need a prenup for my business?

In a word, yes. Whenever anyone decides to launch a business, it is customary to draft a plan. The plan may include a operating or partnership agreement that spells out the details of who runs which part of the company and what happens if the business fails. It may feel uncomfortable to have to establish some ground rules before partnering with your spouse in a business venture. But if you don’t, the results can be unnecessarily messy.

Without an agreement in writing, there are no specified rules for what could happen to your business. That means that everything could be up for grabs, and everything related to your business together will be divided according to the rules of your state.

We don’t have a business “pre-nup.” Is it too late?

Not necessarily, but it does make things a whole lot more complicated. You’ll need both family and business lawyers on your side to help you sort out the next steps. And you’ll need a whole lot of patience, as the process can be much longer and more tedious.

It is common for the process to become acutely stressful when the business is the livelihood for both partners: they are both reliant on the business staying solvent. In that scenario, your choices are limited.

Many legal advisors note that there are three standard routes you can take if you and your spouse own a business and decide to divorce.

  1. Dissolve the marriage, but continue to run the company together

  2. One spouse “buys out” the other spouse’s stake in the company

  3. Sell the company and split the proceeds

In any of the above scenarios, a legal team will be required. There are complicated rules in every state regarding property division, business valuation and divorce. Hiring experienced, knowledgeable attorneys to help you through this process will help ensure that it ends well for everyone.

2022-03-25T08:14:56+00:0016 Jun 2016|
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