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Divorce and business ownership are probably two of the things that are farthest from the minds of couples who recently got married. However, if you and your spouse are running a business together, you need to learn how to protect your business from divorce. This is a practical move that will prevent problems in the future. This will not just protect your interests and that of your spouse, but also of the employees and other business partners you may have.

Understanding the possible impacts divorce can have on your business is one of the first things you need to do to protect yourself. You can also contact a divorce lawyer to assist you on this kind of matter.

To help you out, we have gathered several effects a divorce can have on your family business below.

Impact of Divorce on Family Business

Divorce, when you own a business together, can cause disorder in daily operations.

  • Divorce can hamper day-to-day operations. As it needs your undivided attention at times, then you will be constantly pulled away from your administrative responsibilities. Fitting court appearances or discussions with your family lawyer or business appraiser into your schedule can disrupt your workdays. There is also the matter of complying with company documentation requests, which can be distracting and time-consuming.
  • Divorce can also be distracting for your employees. They may get pulled into your business appraiser’s onsite visits during business valuation and will likely be helping you gather documents for the appraisal or the court. They may also be interviewed about the management of the business and expenses during workdays.

Divorce and business partners don’t go well together.

The points below will show why divorce and business ownership are not a good mix.

  • If your business interest is subject to division in a divorce, then there is the matter of how a part of this value can be distributed to your spouse. You have to think about whether your spouse should get shares of your stocks or not. Consider how this will impact your business partners and your company’s stock value, especially if your spouse decides to sell the shares you gave him. You should discuss these matters with your family lawyer, so you can decide what restrictions can be put in place on what your spouse may do with his/her shares.
  • Look at what may happen when your spouse decides to quit after your divorce and he/she holds a central role in the business’s day-to-day operations. Others will have to take on his/her job on top of their responsibilities. Then, what if he/she chooses to stay? You will have to learn how to co-exist without making it hard for your employees. The tension between the both of you may make your employees uncomfortable and may lead to employment legal issues related to the impact of your relationship dynamics on their work.

Divorce can bring about business dissolution.

You don’t have to panic over this particular impact divorce can bring on a business. This is not common. However, you and your spouse may agree on the dissolution of your business if you are equal partners. Another instance this could happen is when your spouse is eligible for a big cash payout for his/her share of your business’s value and you don’t have the funds to pay him/her. When this occurs, then you may be forced to close or sell the business to handle the payout. Dissolution can also happen after a series of negative events like operation disruptions, bad press, or poor communications. Getting the assistance of your family lawyer, who could explain things and guide you through the process, can make this situation easier for you.

  How to Protect Your Business from Divorce
Have a prenuptial or post-nuptial agreement drawn up. Several matters must be clarified in these agreements. These include making sure that a business established before the marriage is not up for marital distribution after a divorce and determining the methodology to be used for business valuation. It should also be confirmed if the spouse will share in the depreciation or appreciation of a pre-marital business during the marriage.
Put in place practices that can help shield your business from the effects of divorce. These practices include keeping personal and business expenses separate and maintaining detailed documentation of business capital sources, especially if they were pre-marital or marital funds. Paying yourself and your spouse a fair market salary must also be done.
Observe tips that could minimize business disruptions. Divorce and work activities must be kept separate. Therefore, you have to be a master scheduler to ensure that one doesn’t disrupt another. Employees should be spared the burden of being embroiled in the divorce or business valuation by assigning someone to collect documents and providing a single list for everything needed.

If you and your partner are planning to wed soon and you are already running a business together, it might be best if you contact a family lawyer from Gelman & Associates to learn how you can protect your business from divorce.

Did You Know?

2.71 million people got divorced in Canada and did not remarry in 2020. The country has seen a steady increase of divorce cases since 2000 when there were only an estimated 1.88 divorcees. — statistica.com

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Seek Assistance from a Family Lawyer in Toronto

The impact of divorce on family business can be lessened by careful planning and considerations before or immediately after the marriage. If you wish to know more about how to protect your business from divorce, then seeking the assistance of a family lawyer from Gelman & Associates is a good move. Their lawyers can guide you on what can be done and help you through the process, from start to finish.

FAQs on the Impact of Divorce on Family Business

Based on Canada’s family law, the spouse who does not own the family business is entitled to get the equivalent of half the value of the portion of business acquired during the marriage. However, if a prenuptial or postnuptial agreement excludes these shares, then the stipulations on the contract are to be followed.

A lawyer or mediator can assist in negotiating the terms of dividing your business as part of your marital assets during a divorce. Depending on what has been decided, your business can either be dissolved and closed or its ownership transferred.

Whether based on the Family Law Act or as stated by the courts, there is no set way in confirming a business’s value. There are two general approaches though. The first approach focuses on the business’s worth at present, while the second considers its future income-earning capacity.

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