Let's say you've worked hard and started a great little business that's growing every day. Financially you're now in a position where you are ready to get married and have a family, and you find the person of your dreams and say, "I do". Life is good. Your business is at work, and your family is at home, and your spouse has virtually no interest in the business part of your marriage. You think you're set for life, but one day your spouse comes to you and demands a divorce. You feel like your life is over, but at least you are financially secure. That is until you find out that your soon-to-be-ex-spouse can take your business to the cleaners leaving you with only remnants of your hard-earned success.
Yes, you heard that right. Even if your spouse never did any work for the business or even showed any interest at all, the courts are going to think that he or she deserves as much as half the value of the company you've nurtured. It doesn't seem fair, does it? Unfortunately, life is seldom fair, and you're going to be facing a lot of issues that you really don't want to deal with on top of the dissolution of your family. Even if you never took any family revenue to run the business, it's still possible that your spouse will be entitled to a share. The odds of you having to split up the equity in your business is even greater if you started it while you were married or if you live in a community property state.
In some states, you will be required to act as a fiduciary to manage your spouse's share of the business. In cases like these, you will be expected to continue running the business at a reasonable profit. These laws were passed due to those who thought they could get more than their share of the business by padding losses during the year immediately prior to the divorce. During the proceedings, you can expect an accountant, and maybe another financial expert, to make in-depth evaluations of your business in order to ascertain what it's current market value might be, how market trends are going to affect it in the future, and how much equity your spouse should have.
It's a good idea for those entering a marriage while owning a business to have some type of a pre-nuptial agreement. In it you'll want to spell out exactly what each person will be entitled to if there's ever a split.
Yes, you heard that right. Even if your spouse never did any work for the business or even showed any interest at all, the courts are going to think that he or she deserves as much as half the value of the company you've nurtured. It doesn't seem fair, does it? Unfortunately, life is seldom fair, and you're going to be facing a lot of issues that you really don't want to deal with on top of the dissolution of your family. Even if you never took any family revenue to run the business, it's still possible that your spouse will be entitled to a share. The odds of you having to split up the equity in your business is even greater if you started it while you were married or if you live in a community property state.
In some states, you will be required to act as a fiduciary to manage your spouse's share of the business. In cases like these, you will be expected to continue running the business at a reasonable profit. These laws were passed due to those who thought they could get more than their share of the business by padding losses during the year immediately prior to the divorce. During the proceedings, you can expect an accountant, and maybe another financial expert, to make in-depth evaluations of your business in order to ascertain what it's current market value might be, how market trends are going to affect it in the future, and how much equity your spouse should have.
It's a good idea for those entering a marriage while owning a business to have some type of a pre-nuptial agreement. In it you'll want to spell out exactly what each person will be entitled to if there's ever a split.