4 Ways a Divorce Can Affect Your Business

Here are some of the most important considerations for business owners who are preparing for divorce, along with some possible strategies for avoiding the worst effects.

By George Skuros Updated: August 30, 2021Categories: Financial Issues

Going through the divorce process will likely impact all areas of your life, whether directly or indirectly. There is no denying the emotional toll that divorce can take, and of course, there is also the very real concern over what may happen to your property and assets. These concerns are often heightened for business owners, who may already be under substantial stress, and who may stand to lose more if the divorce does not turn out in their favor.

Certainly, it is possible to make it through a divorce with your business intact, and even thriving. That said, as with many business decisions, achieving a positive outcome in your divorce tends to require foresight and preparation. It behooves you to consider all of the ways in which your divorce can affect your business, so that you can make a plan to prevent them or handle them as they arise. Here are some of the most important considerations for business owners who are preparing for divorce, along with some possible strategies for avoiding the worst effects.

Here’s How Divorce Can Affect Your Business

Effects on Your Assets

The most direct way that a divorce can affect your business is through the division of marital assets. Exactly how it will affect your business depends on whether your business is a marital asset, as well as the property division laws in the state where you are getting divorced.

Marital assets are primarily defined by when they were acquired. A simple rule of thumb is that a business that you owned before your marriage is generally your own personal property, while a business that you acquired during your marriage is generally a marital asset, regardless of whether or not your spouse is involved. However, there are exceptions to these rules. For example, non-marital business assets that become commingled with marital assets can lose their separate identity. On the other hand, a business acquired during your marriage could be your own property if you invested only your own non-marital assets, or if you received the business as an inheritance.

When dividing property in a divorce, only your marital assets are at stake. In some states, courts presume that marital property should be divided equally between the spouses. In others, courts require an equitable distribution that may vary according to your personal circumstances. You should be sure that you understand which of these standards applies in your state and what this will mean for your business. In order to achieve an equal or equitable division, you may be ordered to sell your business. However, this is rarely a desirable outcome for business owners, and you may want to consider more palatable alternatives. One common strategy is to negotiate an agreement with your spouse that leaves him or her with other valuable assets, like, perhaps, your marital home, so that you can maintain ownership and control of your business.

Effects on Your Partnership

In some cases, getting a divorce can significantly change the ownership or leadership structure of your business. For example, if you and your spouse co-owned and operated a family business, your spouse’s departure due to the divorce could leave you with a major increase in responsibilities, and you could find that you need to bring in a new partner to help with governance and operations.

There are also situations in which the divorce resolution could leave you and your spouse as co-owners of the business. You may decide that despite the failings of your marital relationship, you are still able to work together professionally. However, it may be important to establish a more formalized partnership agreement to clearly define your respective roles and responsibilities and establish resolution methods for any future disputes. You may also need to consider whether the division of your share of the business will impact your standing among any other business partners.

Effects on Your Reputation

You need only look at recent high-profile divorce cases involving business leaders like Bill Gates and Jeff Bezos to realize that for business owners, divorce can become a public affair. While your divorce is unlikely to rise to this same level of scrutiny, you could still find that it affects your business’s reputation, even if your business is well-known only within your local community. If your business has built its reputation on family values, a divorce could call that into question, especially if there are rumors of something like an extramarital affair. Your divorce could also be cause for concern among your employees, who may be worried about the future outlook of the business.

The more contentious your divorce is, the more likely that it will spill over into the public perception of your business. You may be able to mitigate harm to your reputation by keeping your divorce as private as possible and by making an effort to negotiate an amicable settlement with your spouse rather than resorting to litigation.

Effects on Your Mental Health

Many studies have indicated high levels of stress, depression, and other mental health concerns among business owners, in part due to the daily demands of running a business and the difficulty of maintaining a healthy work-life balance. Going through the divorce process will only serve to add to the stress and the demands on your time, energy, and attention. Mental health struggles can affect your focus, confidence, and decision-making, which can have tangible consequences for your business. Even more importantly, mental health struggles can affect your personal well-being.

While it can be difficult to find time to focus on your mental health, the personal and professional costs of ignoring your struggles can be severe. Many business owners and people who are going through the divorce process benefit from meeting with a therapist who can help them better understand their needs and develop healthy coping strategies. Setting aside time for things like physical exercise and meditation can also help you manage your stress and promote your wellness.

Closing Thoughts

The challenges of divorce can hit business owners especially hard. However, by working with a divorce attorney who has experience representing business owners, you can ensure that you are well-prepared and informed about what to expect, and that you have quality representation for any legal disputes or difficulties. With someone helping you handle your legal affairs, you can better focus on your personal needs and the task of making your business the best it can be.