Divorce is incredibly challenging—personally, emotionally, and financially. For business owners, the stakes are even higher. Not only are you navigating a life-changing personal separation, but your business—a livelihood that you may have spent years building—is now at risk. Studies reveal almost 1 in 20 business owners are forced to shut down due to the financial toll of divorce.
At the Law Offices of Michael A. Robbins, we understand the complexities business owners face during this difficult time. To help protect your business and secure your future, we’re highlighting five of the most common mistakes business owners make during divorce—and how you can avoid them.
Mistake #1: Failing to Prepare for the Outcome of Divorce
Preparation is key when navigating a divorce as a business owner. One of the most effective ways to prepare is through prenuptial or postnuptial agreements. These legal agreements establish clear terms for handling business-related assets if your marriage ends.
- Prenuptial Agreement: A contract signed before marriage to protect ownership and division of assets—including business interests.
- Postnuptial Agreement: Similar to a prenuptial agreement, but signed after marriage.
Without these agreements, dividing business assets can quickly become contentious. Courts may view your business as marital property, potentially entitling your spouse to a share. Even if you’re already in the midst of a divorce, a skilled divorce attorney can work with you to negotiate a fair property division plan to protect your business.
Mistake #2: Neglecting to Value the Business Properly
Determining the value of your business is a critical step during divorce proceedings. Neglecting this step—or relying on inaccurate estimates—can lead to disastrous financial outcomes.
A professional business valuation ensures transparency, accuracy, and fairness. It involves analyzing factors like:
- Business income, assets, and liabilities,
- Market trends, and
- Intangible elements like brand equity.
Undervaluing your business could result in an unfair settlement while overvaluing could lead to unnecessary financial strain or a larger payout obligation. Engaging qualified valuation professionals is essential to avoid these pitfalls.
Mistake #3: Not Planning for Business Succession
Will you continue running the business post-divorce? Or will your former spouse become a co-owner or shareholder? These are difficult but necessary questions to consider when planning for the future of your business.
Here are a few options you may explore with your attorney:
- Ownership Buyout: You or your spouse purchase the other’s share, allowing the business to remain under a single owner.
- Transfer of Ownership: If co-ownership with a former partner isn’t viable, consider selling the business entirely and dividing the proceeds.
- Succession Planning: If you plan to remain actively involved, define clear roles and responsibilities post-divorce.
A lack of planning can result in operational disruptions and legal disputes. Developing a business succession plan alongside your legal team can help secure the long-term stability of your company.
Mistake #4: Overlooking the Tax Implications
Divorce-related financial decisions often come with significant tax consequences. Every property division, spousal support agreement, or business sale could change your financial outlook. Failing to account for taxation leaves you vulnerable to penalties or unexpected expenses.
Key tax considerations include:
- Property Division: Transferring business assets may trigger capital gains taxes in certain situations.
- Spousal Support: Depending on your jurisdiction, spousal support payments may or may not be tax-deductible.
- Business Restructuring: Ownership transfers or buyouts could come with substantial tax burdens if handled improperly.
To avoid financial pitfalls, consult a qualified tax advisor who specializes in divorce cases. They’ll help you understand the implications of your decisions and minimize your overall tax liability.
Mistake #5: Letting Emotions Drive Decisions
Divorce is an emotionally taxing process, and it’s easy to make decisions based on anger, frustration, or sadness rather than logic. However, impulsive choices could jeopardize both your personal and business interests.
Common emotional mistakes include:
- Agreeing to unfavorable settlement terms to “get it over with”
- Refusing to negotiate out of spite
- Making drastic business decisions, such as liquidating assets unnecessarily
Instead, take a step back and approach each decision strategically. Having a trusted legal advisor by your side ensures you remain levelheaded and focused on your long-term goals.
Protect Your Business with The Law Offices of Michael A. Robbins
Divorce is already a challenging process, and the pressure of protecting your business can make it even more daunting. However, by avoiding these five common mistakes, you’ll be better positioned to secure your future—both personally and professionally.
At the Law Offices of Michael A. Robbins, we are skilled in representing business owners in divorce cases. With over 30 years of experience and a proven track record in high-asset divorce, our team has the know-how to guide you through this complex process. Don’t risk your business by going through a divorce alone. Contact us today.