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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. Divorce can be a time consuming event in your life.  During the divorce process, you may be constantly pulled away from your administrative responsibilities in your business. 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. The employees in your business may be directly or indirectly impacted by your divorce. A hostile divorce with your spouse will definitely affect the workplace.  If there is tension between you and your spouse, this may make your employees feel uncomfortable and result in making the workplace environment unbearable which will lead to employment legal issues.

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 interest in your business in the event of divorce. Consider how this will impact your business partners and your company’s stock value, especially if your spouse decides to sell the shares or interest that your spouse received from the distribution of assets. 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. Your spouse may be directly involved in the business and may even be playing a key role in the business’ day to day operations.

 

If the divorce is messy or your spouse decides to leave the business because of the divorce, this will surely negatively impact your business and will ruin your relationship with your business partners that may result in a lawsuit against you.

It is prudent that you should plan ahead and consult your lawyer from Gelman & Associates on how to deal with this situation or any situation that may arise from a divorce or during the divorce proceedings.

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 especially if you are equal partners. Another instance that business dissolution could happen is when your spouse is eligible for a big cash payout upon their departure from the business and your business is not liquid enough to pay the same. 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. 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 the other. 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 or you already have your own business, 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 million 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

FAQ: Impact of Divorce on Family Business

The property equalization scheme in Ontario is called deferred community-of-property regime. This regime entitles both married spouses to equal share of the profits of the marriage. Generally, ownership or interest in a business or corporation forms part of the family assets that is subject to the equalization scheme. However, if a prenuptial or postnuptial agreement excludes these shares, then the stipulations on the contract are to be followed.

If the divorce proceeding is already happening and you do not have a prenuptial, post nuptial, or any other agreement with your spouse outside the divorce proceeding that shields your business from the effects of the divorce, chances are your business may have already been listed as part of the marital or family assets that will be subjected to distribution between you and your spouse.

It is advisable to consult your lawyer or let your lawyer represent or negotiate on your behalf about that matter instead of doing it by yourself.

Arbitrary dissolution or cessation of the business during the divorce process may be construed by your spouse, the mediator, or the judge,  as bad faith on your part which may negatively impact the outcome of the distribution of assets in your divorce.

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. Whichever approach you and your spouse agree to follow may still be manipulated by other factors like the goodwill or brand of the business, tax implications, etc.

The divorce or family lawyers from Gelman & Associates are highly capable in protecting your business from the effects of the divorce or ensure that you get your fair share in the distribution of assets.

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