Divorce can be difficult enough without adding the complexity of a community owned business into the mix. There are important steps you should take to protect both the business – and yourself – during the divorce as the goal is to have a viable and profitable separately owned business when the divorce is finalized.
Four important Do’s
Do: Talk to both a divorce and business attorney. Your divorce attorney should be able to refer you to a business attorney or consult with one on your behalf. Both attorneys should be authorized to speak to one another during the divorce as the issues will frequently overlap.
Do: Immediately provide your divorce attorney with a copy of the business operating documents. If the community owned business is an LLC, the divorce attorney will need both the Articles of Organization and the Operating Agreement. If the business is a corporation, then the attorney will need the Articles of Incorporation, Bylaws, and the Shareholder Agreement.
Do: Make reasonable efforts to maintain the status quo of the business. Intentionally neglecting the business will have negative consequences.
Do: Consider any other business partners that may be stuck in the middle of your divorce.
Three important Don’ts
Don’t: Shut your spouse out of the business. Follow the business operating agreement and don’t interfere with your spouse’s rights under the agreement.
Don’t: Sabotage the business. The books and records of the business will be reviewed during the divorce process, so anything questionable will be examined. It makes little financial sense for one spouse to attempt to harm the community business.
Don’t: Change the management or operation of the business without first consulting with your business attorney.
Valuation: The community business will likely need to be valued or appraised as part of the dissolution process to determine the value of the business. Sometimes both parties will want independent business valuations. The community owned business is typically retained by one of the spouses after the dissolution and that spouse will “buy out” the other spouse’s interest.
Operations during Divorce: Typically, divorcing spouses can be trusted to maintain the status quo with the business. However, if you see questionable activity, immediately let your divorce attorney know who can work side-by-side with your business attorney to ensure that the business runs smoothly until the business issues are resolved.
Operations after the divorce: Do you want to run the business jointly after divorce? The answer is frequently no. If you are going to run the business jointly you will need very different operating documents to ensure that your separate, and often diverse, interests are protected. A new Operating Agreement or Shareholder Agreement will be critical if that is the case. If one party has purchased the business from the other party, the operating documents will need to be reviewed to ensure control of the business is documented in the agreements.