Divorce is complicated enough without adding a business to the mix.
If you own a business, divorce can affect more than your personal finances. You may need to figure out what your business is worth, how it fits into the division of assets and what happens to your income in the future. At the same time, you're adjusting to life on a single income and figuring out how to cover your expenses.
It's a lot to deal with at once.
The good news? You don't have to figure it all out alone. Getting organized early and bringing the right professionals into the conversation can help you make better decisions and avoid expensive mistakes.
Here's what to consider if you're preparing for divorce as a business owner.
Before you make big decisions, get a clear picture of what you own, what you owe and what it costs to run your household.
Start by looking at:
Then look at your business.
Gather your financial statements, corporate tax returns, shareholder information, business loans and details about major business assets. Organizing these documents will make it easier for your accountant, lawyer and other advisors to understand your situation.
One of the biggest changes after divorce is that expenses that used to be shared may now fall on one income.
Fairway Divorce Solutions, a True North Accounting partner, points out that post-divorce living costs can be higher than people expect. You can't always assume your old household expenses will be cut in half.
Take a close look at what you'll need to cover on your own, including housing, utilities, transportation, groceries, insurance, childcare and other regular expenses.
Don't forget about the less predictable costs, either. Kids' activities, education, camps and other expenses can add up quickly.
The goal isn't to create the perfect budget overnight. It's to understand what your new baseline looks like so you can make informed decisions about your income, spending and business.
For business owners, one of the biggest questions is often: What happens to my business?
The answer depends on your specific situation, including how the business is structured, when it was started, who owns it and the applicable family law rules.
You'll also need to understand what the business is worth.
A business valuation can look at much more than revenue. Depending on the business, factors may include profitability, cash flow, assets, liabilities, investments and future earning potential.
This is one area where it's especially important to have the right people involved. Your lawyer can advise you on the legal side, while your accountant can help you understand the numbers and tax implications.
If your business is part of the assets being divided, selling it isn't your only option.
Depending on your circumstances, you may be able to:
Every situation is different. The right option depends on your business, your finances and what you want your life and business to look like after the divorce.
Before deciding, look beyond the immediate settlement. Taking on debt to keep your business, for example, could affect your cash flow for years. Selling the business could solve one problem while creating another.
Run the numbers before you make the call.
When you're going through a divorce, it's understandable to want to protect what you've built.
But moving money, selling assets or changing how your business is structured without professional advice can create bigger problems later.
Before making a major move, talk to your lawyer and financial professionals. They can help you understand the potential tax, legal and financial consequences before you act.
A little planning now can save you from an expensive surprise later.
Child support and spousal support can also affect your post-divorce budget.
For business owners, figuring out income isn't always as simple as looking at a T4. You may pay yourself through salary, dividends or a combination of the two. Your business may also have variable income from year to year.
That's why it's important to understand how your income and business finances could factor into support calculations.
You may also have additional child-related expenses, such as sports, camps, education or lessons. Talk to your legal and financial advisors about how these costs may be handled in your separation agreement.
It's easy to get focused on getting through the divorce. But once you’ve made the immediate decisions, you'll need a plan for what's next.
Take another look at your:
Your new financial plan doesn't have to be perfect on day one. Start where you are now and adjust as your situation changes.
The goal is to build a plan that supports both your life and your business.
Divorce is hard. Adding business ownership, taxes, assets and cash flow to the mix can make it even more complicated.
The best thing you can do is get organized, understand your numbers and surround yourself with the right professionals.
You built your business to support your life. As you move through a major life change, make sure your financial plan supports what comes next, too.
If you're a business owner going through a divorce, True North Accounting can help you understand the numbers and plan for what's next.
Our CPAs work with business owners on everything from tax planning and cash flow to business valuations and long-term financial planning. We can also work alongside your lawyer and other advisors to help you understand the financial and tax implications of your decisions.
Looking for more small business advice? Explore our Strategic Advisory series for practical tips and guidance for business owners.