When going through a divorce, dividing assets can be a very complicated and grueling process. It is important to think ahead about your needs, the future needs of your business and be sure that the arrangement settled upon between you and your ex-spouse prevents any further issues or conflicts down the road. It can be daunting trying to think ahead of ways you may need to protect your business assets two or three years down the road. Here are a few things that can be done to help prevent future conflict and make your life easier in the long run.
Document Any Transfers of Assets
First, it is important to get any and all transfers of assets documented in their own right, not just as a point in the documentation from the divorce. These asset interest transfers need to be clearly documented in order to prevent possible complications. Having this detailed and thorough record of the transfer agreement can prevent the “divesting spouse,” or the spouse who is transferring the interests, from trying to claim any ownership or rights to parts of the business later. This will protect the “recipient spouse,” or the spouse who is receiving the interests. It also allows for certain provisions regarding the business assets to be very clear to all parties involved. When they are part of the original divorce document as one piece, it can lead to miscommunication. Making every effort to be clear and concise is important for the recipient spouse.
Establish a Release of Claims
Along with the agreement written about the transfer, a release of claims needs to be established. This is again a way to assure protection of the recipient spouse and the business from having any further claims of funds or support from the divesting spouse. To mitigate any potential conflicts, doing things, such as having the divesting spouse sign a confidentiality agreement will help prevent them from competing with or giving away any of the assets in the business.
Restrictive covenants are also a large part of this arrangement too, to be sure again, that the future of the business and its interests are protected. This could include things similar to a non-competitive clause where the divesting spouse cannot try to persuade employees or people involved within the business to leave and compete against it. This is also where confidentiality agreements are important as mentioned prior. This will protect the information and privacy of the business and its future endeavors.
Without limitations on information sharing and potentially poaching employees, a divesting spouse has the opportunity to strip important trade secrets and poach valuable employees who are important to the functions of the business as a whole. It might not be the case at the time of the separation that the divesting spouse would do this, but things can change and it is important to act in the best interest of the business and its assets from the very beginning.
Understanding Tail Coverage
Another important form of protection for a business is purchasing what is called “tail coverage.” This is especially helpful for businesses in time of transition. It protects and covers people after a policy is no longer covering them, but a claim is made from a time period when they were under that policy. This type of coverage should be bought by the recipient spouse because if they face a claim that is against the divesting spouse regarding the business, they can likely receive the fall out of that issue first hand and be left to pick up the pieces. By purchasing this coverage, the divesting spouse will be protected, which will protect the business itself in the end.
Attorney Matthew Lott of the Lott Law Firm says, “Many people want to avoid tail coverage in a divorce because they feel like it only benefits their ex-spouse from suffering in a claim. It protects the business as a whole and that is something worth investing in.”
Planning For Taxes
The final thing that should be considered upfront when dividing business interest assets during a divorce is taxes. The year in which the divorce occurs will still be taxed as it was prior to the transfer. This is something that can be anticipated and planned for in the documentation, even though it will have to wait to be carried out until the taxes are filed. This type of planning should involve a tax advisor to assure that all needs are met and the correct measures are taken.
Let An Experienced Attorney Help With Dividing Assets
The bottom line is, when going through divorce proceedings that involve the division of business assets, it is important to document everything clearly, prepare for potential choices even if you think they won’t happen and don’t cut corners. Even in amicable divorces, things can change, and planning upfront on how to handle potential conflicts is the way to prevent them.
