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October 12, 2023

Protecting Your Business During a Divorce: Legal Tips for Charleston Entrepreneurs

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The stakes during divorce are especially high when you’re a Charleston entrepreneur. In addition to impacting your children, finances, home and other personal assets, divorce may also affect your business. If you formed your company during the marriage, the South Carolina Family Court system may consider it as marital property, meaning that your non-owner spouse or co-owner spouse may acquire some of the business.

Additionally, as a business owner, you have to consider that your spouse may try to harm your business or the future income you’ll receive from it. This makes it all the more important to protect your business during a divorce and work alongside an experienced divorce attorney. In this guide, you’ll discover 12 legal tips regarding divorce proceedings in Charleston for business owners.

1. Preparing for Divorce as a Business Owner

Even if you started your business before getting married, it’s crucial to understand how divorce might affect your company to reduce any negative implications. Some factors that the court may take into consideration when determining what happens to your business during divorce include:

  • When you founded the company.
  • Your business valuation.
  • How involved your spouse is in the business.
  • Financial obligations you may have to your spouse.
  • The presence of prenuptial or postnuptial agreements.

Maintaining accurate financial records plays an essential role in protecting your business during a divorce. Records such as financial statements, tax returns, bank statements and other financial documentation can help demonstrate your business ownership. You should also ensure that your personal and business finances — such as credit cards and bank accounts — stay separate to reduce the chances of your spouse claiming business assets during a divorce settlement.

2. Prenuptial and Postnuptial Agreements

Marital prenuptial and postnuptial agreements are an excellent way of protecting your business during a divorce in Charleston. As a business owner, it’s best to establish a prenuptial agreement with your spouse to keep your business assets out of divorce proceedings. Prenuptial agreements are drafted before a couple gets married. Similarly, a business owner may draw up a postnuptial agreement if they begin a business after getting married. This agreement generally establishes that the company is one particular spouse’s property and outlines how they will handle the business in the case of divorce.

Even so, a spouse may attack a prenuptial or postnuptial’s validity during divorce, so it’s important to contact a Charleston divorce attorney who can analyze the agreement and defend it if necessary. In some cases, if a judge declares a marital contract legally invalid or unfair toward one spouse, the agreement may become invalid during the divorce. An attorney can be especially helpful to potentially improve the situation if it arises.

3. Business Valuation and Appraisal

It’s vital to receive a fair and accurate business valuation during a divorce if the business is classified as marital property because, in these cases, the court must divide your company equitably. Obtaining the right appraisal will help you protect your business during a divorce. Determining the business valuation requires three main approaches:

  • Market value: An appraiser will value the business based on similar companies.
  • Assets: Assets such as equipment, inventory, real estate, accounts receivable and intellectual property help determine the value of the business.
  • Income: This method uses formulas and company history to determine future profits and cash flows.

You must seek professional assistance for an accurate appraisal if you have a complex business model. An appraiser can help you understand which method will help you determine the value of your business most accurately, especially since all three may give you varying results.

4. Protecting Intellectual Property Rights

During the divorce proceedings, you and your spouse may need to divide intellectual property (IP) within a business along with other equitable physical assets that count as marital property. Intellectual property within the company can include trademarks, copyrights, patents and trade secrets. Steps for protecting intellectual property rights during a divorce include working with an attorney, financial advisor and legal counsel to:

  1. Identify intellectual property: Professionals will help you identify the intellectual properties your business created during marriage and establish whether it is marital property, a commingled asset or separate assets.
  2. Gather evidence: Attain all the relevant documentation supporting your claim about how involved your spouse was in the intellectual property’s development, creation and maintenance, if at all.
  3. Conduct a valuation: As mentioned before, an appraiser may help you choose a valuation approach and conduct the valuation of individual IP assets to help divide IP rights, if necessary.
  4. Negotiate the division of intellectual property rights: Try discussing with your spouse and their representative about a fair division of IP assets and royalty income by considering each party’s financial needs, contributions and other factors.
  5. Explore alternative options: To keep the full intellectual property ownership, discuss the feasibility of buying out your spouse’s IP interest or drafting a royalty-sharing agreement.
  6. Draw up a detailed agreement: Prepare a clearly defined agreement about the division of IP assets and all terms and agreements.
  7. Gain court approval: Submit this agreement to the court for review and approval.
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Working with an intellectual property attorney will help you find the best course of action for splitting IP, present your options and guide you through the entire process. This can include finding a way to retain sole ownership or simply giving your spouse a percentage of business profits as a co-owner.

5. Division of Assets: Equitable Distribution

The South Carolina Family Court system uses equitable distribution to divide marital assets between spouses in divorce. If you and your spouse find it challenging to make a decision together, protecting assets during a divorce with equitable distribution may be a suitable option. Involving the court can also help you protect your business from unfair division. Some factors the court considers to determine a fair division include:

  • The duration of the marriage.
  • Misconduct or fault from either party in the marriage.
  • Post-divorce obligations such as child support.
  • Each spouse’s physical and mental health.
  • Each spouse’s income and earning potential.

prove non-marital assets om a divorce

If you are against equitable division and your spouse wants the court to handle it, you will need to prove that your business is a non-marital asset to avoid division by the court. You may do this by establishing one of the following:

  • You initiated the business before the marriage
  • You acquired the business with non-marital funds
  • You inherited the business or it was a gift
  • You have a prenuptial or postnuptial agreement protecting the business

6. Dealing With Co-Ownership and Business Partners

If your spouse helps the business through employment or helps you run it, there’s a chance they are entitled to a percentage of the business during divorce. Some effective strategies you could use in this situation include buying out the spouse, selling your company or maintaining co-ownership.

A buyout involves buying your spouse’s interest in the business to maintain full company ownership. Selling the company is another common strategy co-owners will use in divorce, and they’ll divide the proceeds as needed. The profits gained will often vary and depend on business profitability, marketability and economic factors. The third option, while uncommon, involves continuing to share the company as co-owners and putting their differences aside to perform their jobs.

Many spouses may choose to establish a buy-sell agreement with their co-owner spouse to retain their shares. This contract uses specific language to describe what happens with business ownership and assets if divorce occurs to protect the business and its ownership. It may also provide details about the valuation method spouses should use to value business shares and the method they will use to sell these shares.

Alternatively, it’s helpful to communicate with your spouse throughout the divorce process, if possible, to resolve any conflict and make reasonable decisions. If overcoming emotional and psychological barriers proves challenging, you can receive help from a divorce mediator, which we’ll discuss more about in a later section of this article.

7. Temporary Restraining Orders and Injunctions

If you are concerned that your spouse might damage your company financially, requesting a temporary financial restraining order may help prevent this. A financial restraining order will prevent both spouses from withdrawing, transferring, concealing, spending and disposing of assets without the court’s permission.

An injunction can restrict a spouse from performing damaging actions such as selling off property, emptying a joint bank account, moving money into an account only they can access or transferring assets to another person. It’s essential to be quick about requesting injunctions and temporary restraining orders to prevent financial harm to you, your children and your business.

8. Business Succession Planning

To protect your business during divorce, it’s essential to put a comprehensive business succession plan in place. A succession plan requires you to identify potential successors within the business and involves ensuring the next owner continues to implement your strategy. Poor succession planning can cost your business greatly, making creating a plan essential.

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Additionally, it’s important to address tax implications and financial considerations for minimal disruptions during divorce proceedings. You can form a trusted advisory team with an experienced attorney, financial planner and accountant to identify any tax and financial weaknesses and develop a plan to improve those aspects before divorce proceedings.

9. Hiring a Skilled Divorce Attorney

If you want to effectively protect your business interests, collaborating with an attorney is especially beneficial. An attorney with experience in business-related divorces will have an in-depth understanding of issues that may impact your business and divorce and advise you on the best possible options available. They’ll prepare and file documents such as prenuptial and postnuptial agreements, property settlement agreements, and divorce petitions.

Here are some questions you can ask to ensure you select the right divorce attorney:

  1. How many divorce cases have you handled?
  2. Can you provide references from past clients?
  3. How frequently will we communicate about my divorce proceedings?
  4. Can you tell me what the process will be like from start to finish?

10. Mediation and Alternative Dispute Resolution

A mediator is a neutral third party who helps spouses reach agreements about factors of divorce to reduce the time and money spent on divorce proceedings. Mediation and alternative dispute resolution methods facilitate a smoother divorce process through amicable negotiation. When finding the right mediator who understands the needs of both parties, ensure that they have specialized knowledge about solutions that benefit both spouses, a personality you can trust, and divorce training to handle the situation appropriately.

11. Communicating With Employees and Clients

If you believe that the divorce will impact day-to-day work operations or significantly change the workings of the business, it’s essential to be transparent with employees, partners and clients about divorce proceedings. Knowing what to expect regarding whether your spouse will gain stock shares and whether employees may need to spend additional time helping you procure documentation for your attorney and appraiser will help minimize unexpected disruptions to them.

Additionally, it’s critical to build a support network for the business that consists of legal and financial support. A divorce attorney will act as your legal support and the foundation of the divorce proceedings because they drive the process by telling your team what to do and when to do it. Your business can receive financial support from a financial team that ensures the settlement is equitable, meets your long-term financial goals, interprets tax implications and analyzes the payout structure.

12. Finalizing the Divorce and Moving Forward

As a final step in the process, you must review the divorce settlement and its impact on the business. Reviewing the settlement with your divorce attorney can help you gain an in-depth understanding of how your divorce will affect the company and even help you find ways to navigate the changes.

Based on what these factors entail, you should begin implementing changes and adjustments as needed by developing a new personal financial plan that reflects the alterations to assets and income. You can also embrace changes to the business by restructuring your existing business plan or creating a new one that outlines the new arrangements.

Protect Your Business During Divorce With an Experienced Charleston Divorce Attorney

Whether it’s to keep yourself and your family financially secure or protect your business interests and future business plans, safeguarding your business during divorce can be achieved with the correct documentation, planning and professionals. By following the above tips, Charleston entrepreneurs may attain an accurate business valuation, fair division and a business succession plan that protects its ownership and operations.

To protect your business as much as possible and get the most out of your divorce proceedings, it can be beneficial to receive professional advice and support from a skilled divorce attorney. Lauren Taylor Law is highly experienced in divorce and family law and ready to assist Charleston entrepreneurs going through a divorce. Contact us to schedule a consultation about achieving your best interests today!

protect your business through a divorce

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Protecting Your Business During a Divorce: Legal Tips for Charleston Entrepreneurs
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Protecting Your Business During a Divorce: Legal Tips for Charleston Entrepreneurs
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The stakes during divorce are especially high when you're a Charleston entrepreneur. In addition to impacting your children, finances, home and other personal assets, divorce may also affect your business. If you formed your company during the marriage, the South Carolina Family Court system may consider it as marital property, meaning that your non-owner spouse or co-owner spouse may acquire some of the business.
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Lauren Taylor Law Firm
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