How my business will be divided up in the case of a divorce (II)
In a previous post, we discussed some aspects that are considered in the legal process of distributing a business in the event of a divorce. At the end of that post, we explained that we couldn’t expand much further, so we would leave the explanation of additional aspects for another day. Here it is.
To put context (in case the person who is reading this has not read the previous post or does not have the will, the energy or the time to do so): divorce, as we all know, not only brings about a separation in emotional terms, but also in legal and economic terms. To carry out a divorce also means to carry out a process of distribution of both parties’ property, including any businesses.
Now, in that article, we talked about two scenarios and what is done in each one of them: the first scenario was that in which the business was constituted in times prior to the constitution of marriage, while the second scenario was related to the transfer or possession of a business through family inheritance.
While we did not discuss them with the depth and accuracy they deserve, we did provide some data that was very useful for a general and basic understanding of the issue.
Well, in this article, we will talk about other scenarios and try to answer the questions that arise from each of them. Always making it clear that each case must be examined by a legal specialist in the area in order to obtain suitable advice and that these writings only manage to provide some general and simplifying ideas.
What if I’m a business partner?
Business Partner “is a commercial entity that can be a real obstacle in litigation and disputes; and the legal process of property distribution in divorce is not exactly the exception.” if you are a partner in the disputed business, then sharing its value will not be an easy and simple task.
One of the doubts that arise as a result of this scenario is to what extent the other business partners will be involved, that is, whether they will be affected by the aforementioned distribution process. And the answer is: it depends. If the other partners have a relationship with the business value evolution (for more information, refer to item 4 of the section “What if the business was formed before marriage?” of the first article), then they will be linked to the process. Otherwise, the answer is negative.
It is important to note that if the other partners have not influenced the evolution of the business value, the process can be easy and simple. Although it may seem counter-intuitive, the scenarios are common where partners do not exert influence on the value of the business but are only there to receive money from profits and little else. Therefore, as they are not unusual or isolated cases, we would like to make the following recommendation: take a good time to locate a legal professional specialized in the area of divorce, as well as an expert with years of experience, since both are essential to achieve ease and speed in some stages of the process, one of them being the one that we just explained a moment ago.
Usually, a good lawyer and a good expert makes use of reports that show that the interest of the rest of the partners was passive, so they did not play a significant role in the different values that the disputed business might have acquired. In this way, both professionals are in a position to separate the portion of the other members, your portion and the portion that is of community interest, if any.
What if the business was created with other people’s money and the divorce started shortly after the creation?
If there is one thing that should be made clear, after having provided all this information and explained various scenarios, it is that a business may have been created while you were married and this does not necessarily mean that the business must be distributed in its entirety or that it is a shared asset. On the contrary, in certain scenarios, a business created during a marriage may contain an individual portion not subject to legal sharing.
Having said that, we can go on to answer the question posed above: most businesses usually develop initially with other people’s money. But what exactly is that? In this context, other people’s money is money that cannot be involved in a legal distribution process. For example, other people’s money would be those financial gifts from the family; some funds that were at your disposal before marriage; or some money that you borrowed from a source that also cannot be involved in the process. When a business is formed with that kind of money, then a portion of that business becomes an individual and exclusive possession, that is, it does not belong in any way to the community and therefore cannot be subject to dispute.
If the money used came from a source that can be categorized as community money, then an analysis must be carried out to answer the following questions: How much of this money is of community interest? How much money was invested? What is its scope and degree of ownership? How much time was spent? Did that money and time investment by the community have any impact on the creation and evolution of business value? Did it have any influence on profitability?
This analysis, of which we have already spoken, is a real headache. But as long as it is delegated to the appropriate and expert hands, that analysis will not represent a problem, and each of the questions will be easily and quickly resolved. This will speed up the process and you can get out of it as soon as possible.
Be careful with the double dipping
It is very likely that you are unaware of the term, but it is not very complicated, so we will explain it very simply: in this context, double dipping is nothing more than receiving a double flow of money from the same person or organization. A classic example is a retired military officer working as a civilian government official. In this case, the person is benefiting doubly from the government: on the one hand, he receives a pension for military services provided to the nation; on the other hand, he receives a salary from his work as a civil servant.
Well, we have witnessed many cases in which the ex-partner uses this ingenious double dipping technique. How does he do it? Very easy: She asks you for money to pay for some psychological care in order to alleviate the emotional consequences of divorce. Or she simply asks you for money to assist her in dealing with the situation (this is stipulated by law, in fact. For more information, see the California Spousal support law). But where will you get that money? You’ll most likely take it from the business income. So, your ex-partner will be capturing a business income and at the same time will be doing everything possible to obtain 50% of the value of that business.
Obviously, double dipping is morally reprehensible and an extremely unfair act. It is for this reason that, in some cases, negotiations are conducted when the husband is disbursing money as part of the Spousal support law and at the same time is attempting to divest 50% of the property of his business.
However, we want to place a lot of emphasis on the words “in some cases”. If you are a victim of double dipping, you will not necessarily be able to reach an agreement, because its achievement will be linked to several factors: your financial position and your ex-partner’s, if you have children, the amount of money you are disbursing, the expertise of the lawyers of both parties and a long etcetera.
In either scenario, it is highly recommended that you choose to hire a lawyer who has many years of experience working with divorce cases and who has had considerable success.
In conclusion, the legal distribution of both parties’ property during a divorce, in this case, the business, will depend on a multitude of factors. There is no way to generalize and a universally valid procedure, but it will be different depending on the characteristics of each particular case. That is why in both articles we clarified that we were only able to give a general and simple idea of the subject; to put some aspects into context; and to give answers to some questions derived from certain scenarios.
So, you should not ask yourself if your former partner is entitled to 50% of your business, but you should ask yourself about the categorization and valuation of your business, as well as the different elements we have talked about (evolution of value, creation date, etc.). That information will let you know which portion of your business may be subject to dispute and which portion remains intact. That portion isn’t necessarily half-half or 50%.