Business Owners and Divorce

Are you a business owner going through a divorce and wondering how you can protect your company during this sensitive time? If so, you need clear guidance, a strong action plan, and a legal team dedicated to your interests. The New Mexico divorce attorneys with Matteucci Family Law have substantial experience working with business owners like you, and we understand  the challenges you’re facing right now. Let us help you by developing a strategy that protects your business interests and personal assets while preparing you for the future.

Don’t let divorce put your business at risk. Contact Matteucci Family Law today for an initial consultation, and let us help you through this challenging time with confidence.

New Mexico follows the community property principle, which treats all marital property as equally owned by both spouses. In divorce cases, state law supports a fair division of property between the spouses. This means any assets or debts either spouse accumulated during the marriage must be divided in a way that is equitable, though not necessarily equal. 

The implications of this law can be particularly significant for business owners. If you started or grew your business during your marriage, the law will likely consider your business as community property. This would mean your spouse could be entitled to a portion of the business’s value if you divorce. It would also mean your spouse could be responsible for a portion of any business-related debts, depending on your company’s structure.

It’s important to accurately assess the value of your business and any related debts or assets during the property division process in a divorce. Business owners often need to hire professional appraisers to get a clear picture of what their businesses are worth. Working with a divorce lawyer who understands the specific needs of business owners is also recommended. They can provide guidance on protecting your interests and achieving a fair outcome.

The distribution of business assets requires careful consideration and a strategic approach in high-net-worth divorces. Both parties must understand how the law handles such cases to ensure a fair outcome.

Valuation Methods for Businesses

Determining the value of your business is a fundamental first step. Business owners must choose a valuation method that best reflects the true worth of their businesses. One common approach is the asset-based method, which calculates the total value by subtracting liabilities from assets. Another approach is the earning value method, which focuses on potential future earnings and is often used for businesses with significant growth potential. The market value method, which compares the business to similar companies that have recently been sold, is also a possibility. Hiring a professional appraiser is advisable, as they can identify and use the ideal methods to provide a precise valuation that stands up in court.

Division Strategies

Once you establish the business’s value, deciding how to divide it is the next step. One option is for one spouse to buy out the other’s share. This might involve paying a lump sum or arranging a payment plan. Another common strategy is to sell the business and divide the proceeds so both parties receive their share of the value directly. If neither spouse wants to give up the business, co-ownership might be possible, though this requires a good working relationship post-divorce. A lawyer who has experience in high-net-worth divorces can help business owners explore these strategies and choose the best one for their situation.

Several business-related factors can complicate the process of ending a marriage when business owners divorce in New Mexico. Understanding these factors can help both parties prepare for potential issues and identify solutions that minimize disruption to the business.

Disputes

Disputes in divorce involving a business are often contentious, complex and expensive. One common area of conflict is the valuation of the business, where each spouse might have differing opinions about its worth, influenced by their future aspirations and emotional investments. This discrepancy can lead to prolonged legal battles if not addressed promptly. Additionally, if both spouses have been actively involved in managing the business, deciding who continues to run the business can become a major point of contention. In such cases, mediation or arbitration might be necessary to reach an agreement that minimizes harm to the business while respecting both parties’ contributions and rights.

Ownership Structure

The ownership structure of a business can significantly affect decisions during a divorce. If the business is a sole proprietorship, the division process will be more straightforward, as the business is clearly associated with one person. However, complexities can arise with partnerships or corporations, particularly if both spouses have ownership stakes or other partners are involved. Each structure has unique challenges that require specific strategies to ensure the division does not destabilize the business’s operations or financial footing.

Keeping the Business Open

Deciding to keep the business operational during and after the divorce requires careful consideration. If the business is a primary source of income for one or both spouses, they must evaluate the potential impact of the divorce on business operations. This includes assessing whether the business can sustain itself financially with changes in management or ownership. Sometimes, maintaining business operations can be beneficial because it provides ongoing income for both parties. However, this requires a clear and cooperative agreement on roles and responsibilities, often necessitating formal arrangements to manage interactions and decision-making processes post-divorce.

Taxes

The division of a business in a divorce can have significant tax implications that can complicate financial settlements. Transferring ownership or selling parts of a business can trigger capital gains taxes that affect the net value each spouse retains. Furthermore, if the business structure is altered as part of the settlement, this can lead to changes in tax liabilities and benefits. Both parties must understand these potential tax consequences and plan accordingly. 

Finances

Financial considerations are paramount when dividing a business during a divorce. Beyond assessing the business’s current value, it’s important to consider its liabilities, such as loans, leases, or credit lines. Who will be responsible for ongoing financial obligations can significantly affect each party’s future financial situation. It’s also vital to evaluate how the divorce might affect the business’s ability to secure future financing or meet its operational needs. Thorough financial planning and analysis are necessary to ensure that the division of the business does not lead to financial instability or an untenable burden on either spouse.

If you’re undergoing a high-asset divorce as a business owner, protecting your business will be among your top concerns. The right planning and legal measures can make all the difference in protecting your business interests during this challenging time.

Prenuptial or Postnuptial Agreements

Prenuptial and postnuptial agreements are legal arrangements made either before (prenuptial) or during (postnuptial) a marriage. They specify what happens to your debts and assets, including business-related ones, in the event of a divorce. These agreements typically outline that the business should be considered separate property, not subject to division. 

Businesses as Separate or Marital Property

Determining whether a business is separate or marital property is key in a business owner’s divorce. Generally, a business owned by one spouse before the marriage and not commingled with marital assets can be considered separate property. However, if the business’s value increases during the marriage due to the efforts of either spouse, that value increase might be considered marital property. Keeping clear records of your business transactions and maintaining separate financial accounts can help you establish the business as separate property and limit your spouse’s potential claim to it.

Fair Salaries to Spouses

Paying fair salaries to any spouse involved in the business is another protective measure for business owners undergoing divorce. If a spouse is working in the business, paying them a market-rate salary for their role can prevent claims that they should receive additional compensation in the form of business assets during a divorce. This strategy helps in delineating what a fair share of the business’s income is versus what constitutes the marital wealth that might be divided. Keeping compensation practices well-documented and consistent with industry standards can strengthen your position that the business should remain yours.

Buy-Sell Agreements 

Implementing a buy-sell agreement is another effective strategy to protect your business. This type of agreement outlines what happens to a business owner’s share of the company if certain events occur, including divorce. The agreement can set terms under which business shares can be sold, to whom, and at what price. This prevents ex-spouses from taking control or disrupting business operations. Buy-sell agreements can also set a predetermined formula for valuing the business, which can simplify the division process and promote stability.

If you’re a business owner going through a divorce in New Mexico, a high-asset divorce lawyer can provide the support and guidance you need. These lawyers know how to manage complex financial assets and protect your business interests. They understand the laws that apply to all aspects of your situation and have the skills to handle the unique challenges that arise in high-asset divorces. Here’s an overview of some ways a high-asset divorce lawyer can help you.

Drafting Legal Agreements

A high-asset divorce lawyer can draft legal agreements that protect your business. The lawyer can help you structure settlements that minimize the impact of your divorce on the business while still being fair to both parties. They can verify that all agreements comply with New Mexico laws and are designed to stand up in court if challenged. Clear, legally binding agreements developed by an experienced lawyer can prevent prolonged disputes and protect your business from considerable financial strain during the divorce process.

Acting as a Special Master

In a high-asset divorce, a lawyer can serve as a special master, a role appointed by the court to manage complex aspects of the case. A special master in a divorce involving substantial business assets focuses primarily on fact-finding and reporting on specific issues, such as the accurate valuation of the business. Working with a special master can be beneficial when the normal discovery process might not suffice due to the complexities of the assets involved. As a special master, the lawyer works independently of the parties to conduct thorough investigations, evaluate financial documents, and make recommendations to the court about asset division. This can promote a fair and efficient resolution by providing relevant insights and impartial assessments that the court might otherwise lack the resources to handle directly. In many divorce cases in New Mexico, a special master is appointed to sell the community assets which for most divorcing couples is the marital residence

Facilitating Mediated or Collaborative Divorce Proceedings

high-asset divorce lawyers can also facilitate mediated or collaborative divorce proceedings. These approaches focus on negotiation and agreement between the spouses rather than traditional litigation, which can be costly and time-consuming. In a mediated or collaborative setting, the lawyer works to find common ground and craft agreements that respect both parties’ interests while protecting the business. This method can lead to more amicable resolutions and preserve business operations without the negative publicity that often accompanies court battles. Moreover, mediated or collaborative divorces often result in solutions that are more tailored to the specific needs of both the business and the family.

Ready to take the next step towards protecting your business during your divorce? At Matteucci Family Law, we are here to help you through the legal process and support your goals. Whether you are just starting the divorce process or you are looking for new representation, our team is ready to assist. We understand the stakes are high, and we are committed to providing the legal support you need to make informed decisions.