Divorce is often a challenging experience, but for business owners, the process becomes even more complex. A business is one of the largest assets an individual can own, and creates additional legal and financial implications during a divorce.
During a divorce, businesses strive to be consistent in the mission and values for which they are known, particularly family-owned businesses. Often, the namesake may have been passed down through generations or intends to do so.
With the guidance of an experienced divorce attorney, individuals can better navigate the available options to preserve and protect a family-inherited business in the event of a divorce.
Understanding the Importance of Ownership
A family name holds reputation and power. When a legacy spans generations, an owner may feel a sense of responsibility to preserve the values and mission set by their predecessors.
Maintaining control over key decisions within a business will allow the owner to continue to build upon the family legacy. It is essential to seek an attorney who understands the values of a family business and how to protect them if a divorce should occur.
Strategies for Maintaining Ownership
To establish ownership during a divorce, a business must first be categorized as a marital or non-marital asset. Marital assets are subject to division during a divorce because they are assets gained during the marriage.
If an asset is deemed separate or non-marital, it is not subject to division because it was gained outside of the marriage. There are many ways to ensure that a business will be treated as a separate asset.
In the case of an inherited business, the inheritor must show documentation of asset ownership. Most commonly, the will that led to the inheritance can be used as evidence.
Another important step is to clarify all business interests and finances. The business interest and income derived from this interest should be in a separate account under only one spouse’s name.
This makes it clear to the court that one person is entitled to full ownership. A divorce attorney skilled in property division can assist in reviewing and presenting these to ensure the business is not incorrectly deemed a marital property.
Financial Planning and Management
Financial implications are an unavoidable aspect of business division in divorce. However, when it comes to transferring assets, most fall under the tax-free interest rule.
This means that assets can be divided or traded without incurring federal income taxes pursuant to a divorce or upon its finalization.
Once ownership of an asset, such as a business, has been established, each owner is responsible for paying taxes on the portion they own. Hiring a divorce attorney is essential for ensuring wealth is preserved as much as possible.
Accurate and clear financial planning allows the business owner(s) to be aware of their tax responsibilities and can prevent the former spouse from claiming business ownership at a later time.
The business owner should establish separate accounts for business and personal expenses. Separate accounts will clearly demonstrate where funds came from and how they were spent.
This prevents the former spouse from attempting to make claims that marital funds contributed to the business.
Embracing Innovation and Adaptation
In the wake of new or changing ownership of a business, it is important to continue to prioritize the success of the business and its employees. One way to accomplish this is by networking outside of the business.
Engaging with other businesses, attending conferences and meetings, and making personal connections help business owners to remain aware of emerging innovations and trends and allows for new collaboration opportunities.
It is equally important to create a web of connection within the company. To ensure that a business maintains its strength through a period of change, a business owner should prioritize their employees and create a pleasant working environment.
This can be done through employee activities, assigned groups for employees to give each other support, or simply being outwardly grateful for the work that employees accomplish.
A healthy work environment will allow the business to continue to grow and prosper in its new stage.
Get Legal Assistance From a Divorce Attorney for Family-Inherited Businesses
Life changes, including divorce, are rarely easy. Business ownership, taxes, and other financial burdens are just some of the added complexities of a divorce.
Maintaining ownership of a family-inherited business is a stressor that may be relieved with the help of an experienced legal support system.
The attorneys at Milstein Siegel can assist in cases of family-inherited businesses being impacted by a divorce. Contact Milstein Siegel to schedule a consultation to discuss your business situation.
