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Laura Dale & Associates, P.C.

What you should know about your business debt and your divorce

Could your business debt become a big problem in your divorce?

Most of the time, people think that the biggest bone of contention in a high-asset divorce is likely to be the family assets. However, business debt belonging to one party can also cause major headaches.

You may find yourself scrambling to convince a judge that a loan you took against business property to pay for family expenses should be repaid out of the marital assets. You may find that the judge won't allow you to base your support payments off the reduced income you've been taking -- even though the rest of the money was being put toward your business debts. Either way, you could walk away from your marriage saddled with a lot more business debt than you can manage.

How can you avoid this kind of problem? The experts say that there are a few basic rules you need to follow:

  1. Keep your business money separate from your family money. They're two different resources, meant for two different purposes.
  2. If you do borrow against the business or the business property for personal reasons, clearly document where all of the money went. Also, keep track of any repayments that were made to the business out of family funds.
  3. Never pay your family expenses out of the business funds during your divorce. That's a quick way to have the court impute more income to your name than you might otherwise believe is fair.

When you're a business owner, there's no such thing as a "simple" divorce. It may take the help of a forensic accountant and a financial advisor as well as your attorney to get you through.

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