Taking steps to protect your business is crucial for its viability, especially if you’re getting divorced. Depending on your settlement, your spouse could end up owning a share of your company, no matter their involvement in it before your split. This arrangement is less than ideal. To prevent it, you must know what safeguards to put in place before proceedings begin.
Value your business
As you begin divorce proceedings, you will need your business valued. To determine its worth, you must consult an evaluator. Once they calculate the fair market value for your business, you can use this figure to enter negotiations with your spouse. An evaluator will base this figure on your company’s:
- Salaries paid
- Capitalization rate
Keep in mind that your spouse may hire their own evaluator to determine your company’s worth. This person could present a very different picture of your enterprise’s value than that figured by your evaluator. If this happens, a judge will likely determine which professional’s findings are more credible.
Negotiate with your spouse
In California, businesses sometimes qualify as community property. If you started yours during your marriage – or if it gained value during your marriage – your spouse may hold a share in it. In this case, you can propose to buy them out rather than co-own your enterprise. If they play an active role in your business, you will also need to fire them to prevent their further involvement. Yet, beyond the income you bring in, their relationship with your business might be insubstantial or nonexistent. If so, you will likely want to consider giving up other significant assets in exchange for receiving your business in your divorce.
Parting with your business during divorce is a frightening prospect. Yet, you have ways to protect it, once you have a fair market value and a plan of action. An attorney with family law experience can help you forge a path forward.