One of the most difficult issues I faced when I filed for divorce was the question of how to deal with the fact that both my ex husband and I had worked together in a small business for the entirety of our marriage.
Since I am a very trusting person, I had always assumed that this business which we had founded together the year of our marriage was a jointly owned and operated business. Each of us contributed to the business on an equal basis.
Throughout the years of my marriage (and my ex was aware of this and allowed it) I had reported myself to the colleges I graduated from, to potential employers, to literary magazines where I sent my work as the co-owner and the co-operator of a home business. For years I freely offered my help out in the field and in the office, contributing hours and hours of my time to the business without any kind of formal compensation.
However, when the time came for us to divorce, my ex husband simply said that I did not either own or operate the business and that my statements to the effect that I did or had were pure fabrications. At that point, the question became, what did I have on me in terms of documentation to prove otherwise? Were there any papers indicating that our business had been incorporated and that I was a partner? No. Was I listed on Schedule C as the sole proprietor? No, my husband was. Were there any checks written out to me on a steady basis indicating that I had been employed by the company and that I had been working for the company? No. And, of course, the fact that I was not listed anywhere on official company documents meant that even though I had put all those hours and hours of work into the business, I would not receive any social security or medicare compensation for having done so and my right to a share in the business at the time of divorce was gravely endangered. In other words, my ex husband had made a complete sucker out of me. He knew what he was doing.
As an aside, in 2006, the IRS established a means by which husband and wives operating and owning a business jointly could file together as a sole proprietorship; however, this can only be done in community property states such as lovely, sunny, California, not in Connecticut which is an All Property Equity State.
You know, for all those years when I was doing that work, you would think I would have considered the whole question of ownership and how would I be compensated for what I was doing, but "no" I was a complete idiot, and I have a college degree! But, what can I say. I'm a woman. And I have to admit the stupidity element in many so called intelligent women is quite high, particularly when it comes to men. I was talking the other day to a friend, how much common sense does it make that, once they are in jail, vicious killers get mail from women who want to marry them. It's nuts. Only women would act like this and be so unbelievably foolish.
So the bottom line is, if there is no official evidence of the fact that you co-own and operate the business, this puts you in a weak position and opens the door for your ex husband to say that you had nothing to do with the business and that you stayed at home and acted as the little woman eating bon bons and watching soap operas while he slaved away doing everything and owns everything.
Still, there are ways that you can show how central you were to the business. The Court has dealt with this kind of circumstance before and it is not naive to the fact that many women often contribute unofficially to these small businesses. You can indicate the extent of your contribution to the Court simply by providing testimony in regard to what you actually did for the business. Just showing to the Court how much you know regarding how the business works and what it does in and of itself is persuasive to the Court in obtaining your right to compensation for the business.
Also, if you are like me, you have office memos with your name on it, letters from clients directed to you, business cards listing you as manager, log books in your handwriting--all of those kinds of materials are powerful in showing the role that you played.
One way my lawyers tried to undercut my claims regarding the business (yes, my lawyers, not my ex husband's lawyers) was to say that my ex husband was the business because we were selling his expertise, and it belonged to him and would go with him. But this isn't true. There is a dollar value, as with any other similar business, which can be applied to the client list, the good will you have developed over the years and your willingness to recommend the person who takes over your business.
Of course, this is somewhat different than a small business where there are concrete assets such as a building you own, or specialized equipment, fleets of trucks, and multiple employees, or patents you own, etc. but it is still equivalent, you have the right to claim it, and make sure you do.
Another area connected to the issue of Small Businesses and divorce relates to the question of income. You are lucky if your ex husband is working for a company because you have W-2 forms and the question of what do they earn is not debatable. However, if you and your ex ran a small business, income, which is the basis of child support and alimony gets problematic. This is where I hear lawyers telling friends of mine, and I heard this as well, stories like "You lived above your income."
The implication is that you are a wicked and wasteful woman who drove your ex husband into debt with your demands for a luxurious lifestyle. No, no, no, no. This is not the case at all.
What actually happens in small businesses is that your ex may, despite IRS regulations to the contrary, deduct all sorts of fake expenses, some of them regular living expenses, from the income and cry poor. Seriously, they can do that. Ask to see your back taxes, then ask to see the documents that backup the statements they've made about the expenses, i.e. receipts, bills, etc. Watch them huff and puff and hemm and haw. I'll tell you why, because they have no documents because they made all the expenses up. Ok, so many not all of them were, but a carefully selected group of claimed expenses probably don't exist and are not documented. Trust me.
The other thing that can be done with a small business is that a business person can conduct transactions in cash or through barter so that you don't have to report all of your income. For example, one of the best ways to do that is to tell your clients not to submit the IRS form 1099 that reports how much you were paid.
The best test of whether this is happening IS a situation where you appear to be living above your life style. What better explanation is there to the riddle of why you have been living above your means than the explanation that your ex was paying for it in cash.
The other advantage to an abuser of the small business format is that, at least on the books, during the course of the divorce he can slow down the business and substantially lower his income simply by saying, "Business has been bad." or "I've been so upset by my divorce that I haven't been able to get the work done to earn enough income." Argued by the right lawyer, it's an argument that works, and you are the loser.
Your best way to counterbalance this argument is to point out ways in which your ex has been able to continue on earning just fine in other stressful situations, or simply to say that the downswing has been calculated to take place during the divorce. However, you can see how difficult this area can be to negotiate.
The small business format offers your ex husband more avenues towards cheating than any other. So if this is what you are in now with your ex, beware, beware, beware!
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