While divorce between couples with low- to mid-level wealth is focused on ending the partnership peacefully, high net worth individuals (HNWIs) must evaluate the effect of a divorce on accumulated wealth through self-owned business operations. If both parties within the marriage contributed to the revenue from operations or growth of the business, the business is categorized as a joint asset.
It’s unfortunate but, too often, entrepreneurs are so busy getting their businesses off the ground that they don’t consider what could happen if one of the founders gets divorced. There are many variables to consider when protecting your business from a divorce. Here are a few:
First and foremost, the best way to protect your business is to have a marital property agreement in place. These agreements are one of the most effective tools in protecting a business from divorce. They can be made pre or post marriage and can be modified at any time by written agreement.
Family agreements, including the settlement of disputes by agreement between spouses, are favored in Pennsylvania and are generally presumed to be valid, binding, and non-modifiable by the courts. Accordingly, if you are contemplating marriage, or divorce, you should be aware that even agreements that foreclose certain rights under the law will be upheld as long as such agreements are not obtained through fraud, misrepresentation, coercion or duress, and as long as there was full disclosure by both parties.
If you are already in the process of a divorce and do not have a marital agreement in place, read on.
Business Valuation During a Divorce
To protect a business during a high-net-worth divorce, it is important to obtain a business valuation from a reputable firm or an accredited valuation analyst. It is sometimes beneficial for both spouses to agree on a single valuation firm or individual to complete the process because the process of valuing a business is time-consuming and expensive. However, there are cases where the legal issues involved might require the retention of an expert solely to advocate your position.
Ending Spouse Roles from Business Operations
To protect the business and not dilute its value over time, spouses should be transitioned out of active roles within the company quickly. The longer a spouse contributes to operations, the greater the chance he or she has to claim a larger share of business assets in a divorce.
Selling Business Equity During Divorce
Business owners going through a high-net-worth divorce may opt to sell a minority stake in the business to raise additional capital necessary to pay settlement to a spouse. While it is not common for a business to be dissolved entirely to settle a divorce, business assets are at stake.
These are only a few variables to consider when protecting a business from divorce. No matter how smoothly the valuation and legal proceedings move forward, high net worth individuals need to understand the lasting emotional and financial effects of divorce.
Divorce does not have to lead to financial ruin. In many cases, you can rely on our lawyers’ knowledge and reputation to secure the resolution of your divorce-related issues by agreement with your spouse.
The law firm of Wilder, Mahood, McKinley & Oglesby can facilitate an agreement between you and your spouse. Our lawyers have the experience to advise you which course will resolve your divorce in the best manner possible, always in accord with the outcomes most important to you.
To consult with a Pittsburgh divorce attorney about your options in a divorce, contact us online or by calling 412-261-4040. We represent business and professional clients with family law matters across western Pennsylvania.