Entrepreneur Divorce FAQ

It is the dream of every entrepreneur to see their businesses succeed one day. You don’t have to be afraid whether, after obtaining separation agreement and having your property equitably distributed between you and your former spouse, that he or she is going to show up from nowhere to ask for more money after your businesses have flourished.

Pay attention to the following facts:

First, your property settlement has been completed and it cannot be modified. So, your former spouse isn’t allowed to renegotiate that.

Second, it is possible for your former spouse to ask for more alimony. There are issues that must be addressed here: How much was she spending when you were still married? And if it is less than the current alimony, are you financially buoyant enough to give her a living alimony? Since your businesses have just progressed, your former spouse may win a review of her alimony based on these reasons.

Third, a judge may consider your former spouse’s plea for an increase in her alimony if her expenses have correspondingly increased over the years.

Many entrepreneurs often wonder how much settlement their spouses can lay claim to for businesses they have started long before they got married. If you find yourself in this situation, and without a well-defined prenuptial agreement, your spouse can benefit from your business through these three strategic pathways:

• If you input marital capital into your business after marriage, then your spouse is entitled to some of the value of these funds.
• If your spouse contributed to the growth of the business by sacrificing her labor, expertise and time, he or she could be entitled to a portion of your business value.
• If your spouse offers any other supports that eventually make your business thrive, he or she is entitled to some of your business value.

Even though your business and the value it generates may be defined as your separate property, your spouse could still seek equitable distribution of some portions of your business through the three pathways described above. However, this does not indicate that your spouse has an ownership interest in the business.

Divorce is never an easy thing to go through. It is one of the most difficult things for a family, but also a person, and the things that must be done in a divorce are quite long. There are always things like custody agreements and dividing the house, but what if there is a business? When there is a divorce between a couple who own a business, there is more that must be done to ensure that the business is divided properly.

As part of any divorce, a court will classify a property as either a separate property or a marital property. Once this is determined, it will determine how best to distribute everything. The value of this business will be based on fair market value at the time of the divorce. The fair market value can be easy to determine in some cases, but in others it is going to be very complicated and must be done by a professional.

Looking at separate versus marital, if a business interest was acquired jointly when the marriage was still happening, with funds from both parties, then it is going to be a marital property. That means that the value of the business must be shared by both individuals. If the business interest was made before the marriage, or with separate funds, it is separate property.

There is some difficulty in valuation, in order to determine how much each spouse is going to get. In many cases, the couple may just agree on a simple dollar value and that does make things a lot easier. The best thing that can be done is have an expert look at the value of the business and for you and your spouse to have a 50/50 split if it is marital property.

To value a business interest, a simple formula is often used. You take assets and you subtract the liabilities from that. This will give you the value. If the assets are worth $200,000 and the liabilities are $50,000, then the asset value of the business is going to be $150,000.

What about who values the business interest? If the business interest is small, then the parties can just determine the worth and the division as long as there is no dispute over it. Attorneys can also place a value on the business if the value of the business is small and not too complex.

If things are larger and more complicated, then you need to have an expert like a Certified Public Accountant, a Certified Senior Appraiser, or a Certified Business Appraiser. They will be able to go through the details and get a proper value on the business so that the division is fair for everyone.

Remember though, by hiring an expert, the legal fees are going to increase immensely. So if things can be determined without an expert, that is always a good option to consider. The easier something is, the cheaper it is going to be.

It is not advisable to hide income during divorce proceedings, whether it is for the purpose of dodging full child support or alimony obligations or even for getting a juicy property distribution settlement. As an entrepreneur, your business may provide some loopholes through which you could somehow hide your income. But do not fall for this dangerous temptation!

It is a fact that your income will be subjected to rigorous scrutiny during divorce. And if your act of hiding income is discovered by the financial experts and attorneys perusing your financial records, you may be sanctioned and ordered to reimburse your spouse’s attorney’s fees. The judge will possibly doubt your integrity throughout the divorce proceedings.

This could lead to a bigger headache for you in case the information on your tax returns is completely different from the discoveries made on your financial records. IRS may be prompted to audit your account, and if you have failed to adequately declare your income to the IRS, you may be fined or even prosecuted. Providing deceitful income information to the IRS is a felony case.

If you are a very busy entrepreneur who has irregular working schedules, the idea of sticking to a traditional custody schedule may be a nightmare. Don’t worry!

Even though traditional custody schedules are a kind of week-on/week-off model, including holiday visitations (on Father’s or Mother’s Day) or every-other-weekend visitation, you can always find your way around these strict schedules.

After securing a custody agreement, you can design a more relaxed custody schedule for yourself. Let’s assume your business is seasonal and always busy in some months, say March and April. You can arrange to have fewer visitations in those months and have more in other months, say December and January, when you are less busy.

If you work on most weekday evenings, you can make an alternative arrangement to spend the mornings with your children: Bring them in for breakfast and take them to school thereafter.

Entrepreneurs are known to be the architects of their own schedules; this indicates that you have the freedom, on some occasions, to adjust your working schedules to meet your children’s. Their wellbeing should be something you attach great importance to, beside your businesses.

It is not rare in court for non-entrepreneur spouses to disagree with their entrepreneur spouses about the income figures put forward to estimate child support.  In a bid to get more money, the non-entrepreneur spouse may put pressure on the court to urge their entrepreneur spouses to declare the exact amount of money they earned in a year.

This sometimes brings serious confusion into divorce proceedings because, unlike a salaried spouse, it is intricately complicated to calculate an entrepreneur spouse’s actual salary.

If you are confronted with this dilemma, there are two obvious options you can adopt to resolve this:

• Hire a forensic accountant to independently investigate your actual earnings in a year. You will have to supply all the necessary documents for the accountant to fairly do his/her job.
• If your spouse still has some doubts about the outcome of your forensic accountant’s investigation, he or she may hire his/her own investigator.

But if after both investigations are completed and there is still a huge discrepancy in your income figures, this may make your income become an object of litigation. However, you have to stand by your forensic accountant’s estimation throughout the proceedings.

As an entrepreneur, your business may require a lot of traveling, whether to purchase or sell goods, meet investors or partners or participate in meetings or trade shows. It is a fact that your incessant traveling obligations may affect your custody right as a parent, if you have a child.

These are the three main reasons why you may find it difficult to secure enough visitation from the judge:

• A workable schedule: You may not be successful in convincing a judge to grant you a visitation right when your business creates an irregular schedule for you. In other words, if your business requires that you travel three weeks in a month, you will not be able to get every-other-week visitation. And if you go to trade shows or expos on weekends, you will also not be granted every-other-weekend visitation schedule.
• Following your child’s schedule: Before approving your visitation schedule, a judge will first of all consider your child’s schedule and compare it with yours to see if there could be a workable visitation schedule for you. And your chance of getting more visitation dwindles if you are a jet setter.
• Your former spouse’s effect: This may make you feel a bit uncomfortable, but it is the reality. The judge has no any other option than to award your former spouse more custody, if she is always around while you are away on many business trips.

What you can do to get more visitation or custody: Divorce proceedings have opened the eyes of many entrepreneurs to what they could lose if they do not cut back on their many travels and stay with their kids. If you are able to reduce the number of days or weeks you spend away from your children, you may contact the judge for custody modification. This will leave you with more visitation or custody once the judge has ascertained that you will be there for your kids and take good care of them.