It’s Your Business, Don’t Let Divorce Get in the Way

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It’s Your Business, Don’t Let Divorce Get in the Way

When going into a marriage or a business in Maryland, it’s a good idea to plan for the worst before it happens. Without forethought, the laws relating to divorce business ownership can cause any number of unwanted outcomes. In my most recent Ask Lloyd feature, Estate and Business Law When Going Through a Divorce, I was joined by Michelle Profit, an estate planning attorney and Jamie Hamelburg, a business law attorney. Together we explored some key issues, particularly about business ownership, and divorce that every business owner should consider even if divorce isn’t being contemplated.

Your Business is an Asset

You own it, you operate it, you are the boss, but if things go sour in your marriage, your business will be treated like all your other assets to be assigned a value and divided with your spouse. This becomes even more complicated when you both are involved in running the business. A small business is often built on the hard work, reputation and efforts of the owners, so figuring out how to apply a value when two people are fighting can add fuel to the fire. Like any asset, you should consider protecting it before something goes wrong. If you are operating as an entity like a corporation or an LLC, the legal documents should include provisions for valuation that are fair given the type of business. If your legal documents don’t have this provision, consider creating a “Buy-Sell” agreement that sets out fair terms. Think of it as a prenup for your business.

Protect Your Interest

It’s all well and good to propose a Buy-Sell agreement, but what if things have already started to go South? If you and your spouse aren’t getting along, then they are unlikely to cooperate on a formal document. Instead of opening a can of worms, start putting together the evidence you need to show your interest in the business. You can gather and organize existing documents, like emails that give a sense of allocation of contribution to the business. You also need to start creating written records of relevant developments that show who is doing the work, getting the benefit and adding to the value of the company.

If you are a small business, you may have been a little informal about your operations. Now is the time to get serious about paperwork and accounting. Separate bank accounts for personal and business transactions, create or update legal documents, and think through the sort of organizing you would need to do if you were thinking about selling the business. Consider working with an accounting professional to make sure all the books are in order.

Can We Just Get Along?

Couples who co-own a business and both work for its benefit need to make decisions about whether they can continue a professional relationship when the personal has come to an end. Using alternative dispute resolution professionals to help brainstorm what the new normal could look like might be a good idea. If you can’t reach agreement on working together, a professional can help with a transition plan that minimizes the damage to the reputation of both spouses and fairly distributes the business assets according to need and fairness. 

Divorce is never easy, but when there is a small business owned by the couple, it can be even more bitter as both parties argue over their relative rights to the business. Before moving forward with any plans to divorce, it is a good idea to confer with an experienced legal professional who can help identify a path forward that protects your interests. In an upcoming blog post, we will talk about the estate planning issues that came up in the Ask Lloyd episode.

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About The Author

Lloyd A. Malech
Malech Law is located in downtown Bethesda, Maryland. For more than 25 years, Mr. Malech has provided aggressive and effective representation for his clients in Maryland and the District of Columbia. He has been honored with the Lawyers of Distinction Award Recognizing Excellence in the Area of Divorce and Family Law for the past three consecutive years and has just been recognized as a Family Law Top 10 Attorney for 2021 by “Attorney and Practice Magazine.” Visit Malechlaw.com or call (202) 441-2107

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