Kelly Frawley and Emily Pollock, Contributor
March 24, 2022
Going through a divorce can be hard on anyone, but for women business owners, the emotional toll can be particularly overwhelming. On top of the usual pressures of divorce—asset distribution, child custody negotiations, support determinations and the disruption caused by the divorce process itself—you may face the real possibility that you will have to share the company you put your heart and soul into with your soon-to-be ex-spouse.
If your spouse has helped you build the business, either directly holding a position there or supporting you at home as you worked on the business, then this may not be a point of contention for you; you want to make sure they share in the asset they helped create. However, if you have been carrying the bulk of responsibility for running the household and raising the kids in addition to building the business and generating household income, then the idea of having to share the value of your business can be a bitter pill to swallow.
Knowledge and preparation can help you achieve the most positive outcome from your divorce. These insights into what to expect and how to position yourself may help.
Your spouse may be entitled to more than you think. Some women feel a false sense of security believing that if their spouse isn’t a titled partner, then they won’t receive any distribution of the company’s assets. This isn’t necessarily true. While specifics likely depend on the state in which you live, in general, spouses may be awarded a distribution of assets related to the other’s business.
Ideally, this is something you have already addressed in a prenuptial or postnuptial agreement. These agreements can set forth:
- The value of the business at the time of marriage, protecting its premarital value as your separate property
- If/How your spouse would share in company profits or losses from the date of marriage
- The appraisal method to be used to value the business in the event of divorce
- The percentage of the value of the business your spouse would be entitled to in the event of divorce
If you do not have such an agreement in place, then the court will have to determine how much, if any, your spouse will receive. Be prepared with timelines and documentation of both financial and nonfinancial contributions to the growth of the business to support your argument for what is fair.
Preparation and the right mindset can help you hold your ground. While the depth and breadth of your nonfinancial contributions to your family’s lifestyle and well-being may be obvious to you, you will need to be able to demonstrate those to the court. Research is on your side, confirming that the gender gap in unpaid household and family care work continues. In fact, a recent report by Oxfam and the Institute for Women’s Policy Research quantifies this gap succinctly: According to the report, women spend an average of 5.7 hours a day performing home- and care-related tasks, while men spend 3.6 hours. If you experienced that gap in your marriage, be prepared to explain how.
In equitable distribution states (all states except Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), this unpaid work and the value it brings to the family can impact the distribution of the assets, including the value of your business. Women can argue that the duties they fulfill beyond their financial responsibility of generating income should be taken into account as the court evaluates what proportion of the marital assets each spouse is entitled to retain post-divorce.
Custody negotiations don’t have to be difficult. One of the primary factors a judge looks at in determining custody arrangements is how available each parent is for the children. What they may see when evaluating your parenting role are the many demands you face in running a business. What you need to help them see is that owning that business gives you the flexibility to adapt your schedule so that you can be there for your kids when they need you—as you have been doing all along.
The previously held presumption of moms as the primary parent often led to unintentional bias against working moms, but not working dads. As the maternal presumption fades in favor of a presumption for more equal parenting time, these biases are fading too. Growing acceptance of work-from-home and flexible-schedule work models also helps working parents counter arguments that successful careers impeded involved parenting. Pandemic work environments gave rise to a new understanding of how professional and personal lives can mesh seamlessly. Evolving perspectives are likely to work in favor of mom business owners, bringing them onto a more even playing field in negotiations.
Your spouse’s employment at your company can trigger special considerations. Business owners who hire their spouses without putting safeguards into place, like paying them a market-appropriate salary, for example, may find themselves facing unfortunate repercussions in court. A nontitled spouse who has not been paid at market rate can argue for a larger share of the business. So can a spouse who alleges they were instrumental in the company’s growth. And, although getting a divorce doesn’t necessarily mean you must terminate your spouse, if you do, understand that you may be responsible for paying more support until they secure another (equivalent) position.
In these scenarios and others, financial negotiations can become messy and complex, turning what could have been a straightforward settlement into a contentious, drawn-out battle. Taking a pragmatic, business-based approach to having your spouse on staff is essential to smooth divorce negotiations.
Strategic analysis and planning can give you the advantage in divorce, especially when your business is involved. Be knowledgeable, prepared and confident, and consult with your advisers for additional insights.
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