Divorce is a life-altering event that affects the personal lives of those involved and their financial assets. Among these assets, a privately owned business often represents a significant portion of a couple’s net worth and can become contentious during divorce proceedings.
Understanding how South Carolina’s divorce law treats businesses is crucial for business owners going through a divorce. The company you’ve worked so hard to build can be vulnerable during this time. It’s not just about the immediate impact either; your business’s long-term operational and financial health could also be at stake.
The Risk of Divorce on Business in South Carolina
In South Carolina, just like in many other states, the process of divorce can significantly impact businesses. If a business owner is going through a divorce, the business might be deemed marital property if it was established or considerably grew in value during the marriage. This can happen even if the spouse who doesn’t own the business did not actively contribute to it.
Divorce can disrupt everyday operations as it competes for the business owner’s focus. The stress and worry that come with divorce proceedings can also lead to a decrease in productivity, result in poor decision-making, and put a strain on relationships with employees.
There are several situations where divorce can complicate matters for a business. For instance, a divorce might result in diluted ownership and control if the court decides to award a part of the business to the spouse who doesn’t own it. This could potentially lead to lower profits and even cause discord among business partners.
In some scenarios, the court may decide to sell the business to fairly distribute the assets between the spouses. This could lead to the complete dissolution of the business. The stress and distractions caused by the divorce might also result in the negligence of the business, which can have a negative impact on its success.
Tips for Protecting Your Business During a Divorce
Establish Yourself as the Sole Owner of Your Business
In South Carolina, the court considers all property acquired during the marriage as marital property, which will be divided equitably among the parties. However, proving that your business was acquired before the marriage or was gifted or inherited might be considered separate property. To do this, ensure your business’s organizing documents clearly state that you are the sole owner. This can help establish the company as separate property, protecting it from division during a divorce.
Consider An Asset Protection Trust
An Asset Protection Trust is a legal entity created to hold assets, providing a degree of separation between personal and business assets. The primary function of such a trust is to shield these assets from potential claims by creditors, lawsuits, and, sometimes, from division during a divorce.
In South Carolina, creating an Asset Protection Trust involves transferring ownership of your business assets into the trust. Once this transfer is complete, these assets are typically beyond the reach of personal creditors and may not be considered marital property subject to division in a divorce proceeding.
There are many benefits to using an asset protection trust, such as:
- The trust can effectively shield your business assets from being divided in a divorce.
- Despite the assets being owned by the trust, you, as the trust creator or trustee, can still maintain control over the business operations.
- The trust can serve as an effective tool for estate planning, ensuring a smooth transition of your business to your heirs.
However, timing is crucial. If the trust is established after marriage or shortly before a divorce, it may be viewed by a court as a fraudulent transfer intended to avoid fair division of marital property.
Postnuptial Agreement
In South Carolina, postnuptial agreements can be an effective tool for protecting your business during a divorce. If you started or acquired your business during your marriage, it could be considered marital property and, therefore, subject to division in a divorce. A well-drafted postnuptial agreement can specify that the business remains your separate property, protecting it from division.
However, it’s essential to note that for a postnuptial agreement to hold up in court, it must meet specific criteria. Both parties must fully disclose their assets and liabilities, the agreement must be fair to both parties, and each party should have independent legal counsel.
Buy Out Your Spouse (If You Can)
A spousal buyout involves purchasing your spouse’s share of the business, becoming the sole owner. This strategy can be particularly effective in cases where the business is considered marital property, which is subject to division during a divorce in South Carolina.
To buy out your spouse’s interest in the business, you’ll first need to determine the value of the business. This typically involves hiring a business appraiser or financial expert who can provide an objective and accurate valuation.
Once the value is established, you can negotiate a fair buyout price for your spouse’s share. This could involve paying them a lump sum, setting up a payment plan, or trading other assets of equivalent value.
Establish Fair Market Value of Business
Establishing the fair market value of a business is a crucial step in a divorce involving a business owner in South Carolina. The fair market value is what your business would sell for on the open market. In South Carolina, this can be determined through methods such as Net Asset Value, Market Capitalization, or Earnings or Investment Value. Given this process’s complexity, hiring a professional business appraiser or financial expert is recommended. The aim is not just to establish a fair market value during a divorce but to ensure that this value truly reflects the worth of your business, facilitating an equitable division of assets and paving the way for future success.
Form a Corporation
Forming a corporation in South Carolina can be an effective strategy to protect your business during a divorce. This legal structure separates your assets from your business assets, providing protection and simplifying the division of assets in a divorce.
There are several key benefits of forming a corporation in South Carolina:
- Asset Protection: A corporation can protect your personal assets from business liabilities as a separate legal entity. This separation can also help safeguard the business from being directly impacted by a divorce.
- Continuity of Business: A corporation exists even if shareholders change or leave, providing stability for the business during a divorce.
- Clear Ownership Structure: Corporations have defined ownership through shares, which can simplify the valuation and division of business assets during a divorce.
- Tax Advantages: Depending on the type of corporation (S-Corp or C-Corp), there may be potential tax advantages, like avoiding double taxation on dividends.
Forming a corporation isn’t just about protecting your business during a divorce—it’s about positioning your business for success and stability in the future.
Contact Sarah Henry Law
Protecting your business during a divorce is a crucial step that requires careful planning and execution. Whether establishing the fair market value of your business, forming a corporation, or implementing other strategic measures, these steps can help ensure that your business remains stable and prosperous even amidst personal changes.
However, navigating these processes can be complex and challenging without professional guidance. With her extensive family law experience, Sarah Henry can provide the legal advice and representation you need during this critical time.
Don’t let the complexities of a divorce put your business at risk. Reach out to Sarah M. Henry Law today for a consultation, and let her expertise guide you towards protecting your business and achieving your goals. Visit Sarah Henry Law or call (864) 478-8324 to get started.
