How to best divorce both your spouse and your business
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How to best divorce both your spouse and your business

| Mar 26, 2020 | Firm News

Going through a divorce is rarely uncomplicated. When divorcing spouses also both have ownership in a business, the legal part of the separation can become extremely difficult. Many couples seeking divorce in North Carolina and around the country are going through this intricate process of leaving both one another and their business. Fortunately, there are a few standard points every couple should address to at least get some of what they need, even when they can’t get everything they want.

To ensure a clean break from the business, the spouse who is transferring interest in the company should provide the other spouse with a release from any future claims from the business. The spouse who will no longer be a part of the business will want to be sure they cannot be held responsible for claims that arise after their ownership and control of the business has ended.

The transferring spouse should also be sure they have taken steps to indemnify themselves against any legal action from third parties or creditors after their ownership has ended. Should they become involved in legal action by third parties, the company should be required to provide defense and take care of legal fees. This can be nullified should the transferring spouse be proven to be negligent in the act that caused the third-party action.

Legal verbiage should also be included to prevent the inclusion of phantom money that could be included on the K-1 document used to report shareholder’s income on the following year’s tax return. Phantom money is income that the shareholder never actually received.

When divorcing couples have ownership interests that are highly-valued, there are many different paths to dividing assets so that both spouses financially benefit. Consulting with a family law attorney experienced in the division of high-value assets might help to ensure the divorce settlement is as fair and equitable as possible.