More and more adults are stepping out on their own and choosing to start a business rather than work for someone else. This can give entrepreneurs a real sense of control over their success. When you spend the time and effort to build your business, you will do anything you can to protect it. If you are going through a divorce in Ohio, you may be concerned about what your marital split might mean for your business.
Will your financial stability be at risk? Does your spouse have a claim to your business? If you and your spouse share ownership, will your personal decisions threaten everything you’ve built? If you are an entrepreneur and going through a divorce, you need to be very informed, deliberate, and clear-headed about how you move through the process to protect yourself and your future.
Ohio is clear that any assets you acquired prior to marriage, or obtained but kept separate during the marriage, is separate property. Any assets acquired during the marriage, or assets that grew with joint contributions during the marriage, will be considered marital property.
Your business is an asset, but it can be a murky one. Maybe you started your business before your marriage, but during the marriage, your business and personal accounts were blended, or your business grew significantly during your marriage, thanks to either financial or personal support from your spouse. Before you make any decisions during your divorce, start by talking to an experienced divorce attorney about how your business will be classified during the process, since that determination will drive the decisions you will need to make.
To secure your business, you need an accurate business valuation. A business can be valued by an asset approach (looking at the liabilities and assets to determine value), a market approach (looking at comparable businesses and recent sales to determine value), or an income approach (looking at the financial history and using this to project future earnings). This requires the help of a financial professional, since it involves both tangible and intangible assets, financial reports, the current market conditions, and projected future earnings. If you share ownership with a partner, you will have to take their ownership stake into consideration as well. Your attorney should be able to recommend a professional for the valuation and then have the right experience to advise you based on the reports.
In most divorces, the spouse who earns less will be awarded spousal support for a period of time following the divorce. The amount is determined by the difference in income. For salaried or hourly workers who are employed by a third party, earnings are easy to determine, making spousal support straightforward. For entrepreneurs, earnings and cash flow are much more of a variable. During your negotiation, you need to make sure that any spousal support payments will not strain the operation or resources of the business. To make sure that you are presenting the court with an accurate and thorough picture of the cash flow, you will need to prepare a full financial picture of not only the value of the business, but the operating costs.
There are several options if your spouse has an ownership share, and plenty of variables that can impact how you choose to move forward. Some spouses will separate their ownership interests, but continue to both own a portion and participate in the business operations. If you and your spouse have an amicable divorce, this can be a great possibility that keeps your business running smoothly as you transition from spouses to business partners.
Other couples, who may have a more contentious divorce, need to transition ownership. In these cases, one spouse will buy the other out of their share, either with a cash payment or by offering up another comparable asset. Your divorce does not mean you should lose your business, but you do need to keep a clear and unemotional head as you make these decisions.
If you are already going through a divorce, you will need to play the hand you’ve been dealt. However, if you haven’t begun the process and are simply thinking about possibilities in the future, you can take a few steps to safeguard your business. An attorney can help you get the right plans in place so you are ready for whatever the future may bring.
This is a smart idea for any business owner. Keep detailed financial records and avoid blending your funds. A financial advisor can help you make sure that your finances are clear and organized.
Once emotions come into play, fair fighting goes out the window. Before you start your business, set up a legal contract that outlines ownership, how the business will be divided in case of a split, and the rights each spouse has to the business.
You should have a process ready to transfer ownership in case of any issues. These can specify terms for buyout, outline changes in ownership, and put plans in place for continuity.
During the divorce process is a terrible time to make major business decisions. If you are even considering divorce, wait until the process is finalized before starting a business, making changes to ownership, or using any joint funds for your business.
Just because your marriage is ending doesn’t mean your business needs to end too. The hard work you’ve invested as an entrepreneur should not go to waste. However, you need the help of an experienced divorce attorney to protect you and your business. If you are an entrepreneur and facing a divorce, look for an attorney who has experience working with business owners in this area.
If you’re going through a divorce and need answers, legal options, and representation, contact my office today!