By: Atty. Alywn Faye B. Mendoza, Associate
The acclamation for the legalization of divorce used to be split when SWS first surveyed it in 2005, 43 percent agreed, 12 percent were undecided, and 45 percent disagreed. Six years after or in 2011, it obtained moderately strong support. In 2014, it went to very strong and stayed at moderately strong up to 2017.
The Family Code of the Philippines currently provides two ways for couples to separate – legal separation and annulment. However, the legal separation will not sever the marital bond and the annulment will take a long time and cost a large amount of money.
When people get married, they always dream for a “happily ever after life.” However, the sad reality is nothing in life is certain, not even marriage. One thing is for sure though, divorce hurts – not only to the ex-spouses, their children and their pockets but also their business. What then is the impact of divorce on one’s business and how can one protect it ahead of time?
How Divorce Affects Business
Imagine ending up in a business partnership with your soon-to-be ex-spouse or worse, giving up half of the business in community property. Ronna L. Deloe, Esq., a New York-based lawyer who is well-versed in family litigation cases, illustrates this scenario.
Atty. Deloe explained that giving up half the business could mean that other assets can be paid to your ex-spouse. She gave an example of a couple owns assets say a house, cars, stocks, bank and retirement accounts. Instead of giving the ex-spouse half of the other spouse’s business, these marital assets can be divided so that the latter keeps the business while the former gets a share of the other assets. This scheme allows for a hands-off approach towards a managing spouse’s business—a business he worked hard at creating and growing.
Atty. Deloe continued that another possibility is the liquidation of the with the ex-spouses splitting the proceeds. However, she added that most courts may be reluctant to do this, especially if the business was paying the family bills.
Jeff Landers, the creator of Think Financially, Not Emotionally® brand of books, outlined the possible effects of divorce in a spouses’ business depending on the time of its creation. Landers said that if the business was started by one spouse before the marriage, then getting a divorce may not impact it if it is able to remain the separate property of the spouse who started the business. According to him, however, the problem is that many businesses lose their status as separate property during the marriage. If the business increased in value during the marriage, that increase in value could be considered marital property. The good thing about this is anything that is considered marital property can be divided between the spouses. In this scenario, the increase in value can be subject to an equal or equitable distribution.
Landers cited that if an ex-spouse contributed to the other spouse’s business, then the business is marital property subject to distribution. Another possible scenario is if the business was formed during the marriage, it is also marital property and subject to distribution.
Ways to Protect Business
There are ways to protect yourself ahead of time so your business survives your divorce. One way to do protect your business is to enter into a partnership agreement which stipulates the method to determine the value of the business and the actions to occur in the event of a separation. Another is to enter into a buy/sell agreement between the parties.
The best way to do it, however, is to draft a prenuptial agreement which designates any future businesses or businesses which have already started as separate property.
In conclusion, proper legal planning can be a valuable exercise to minimize or avoid risks brought about by divorce on business relations.
Landers, J. (2010, May 25). How to Protect your Business in a Divorce. Retrieved from https://www.inc.com/guides/2010/05/protecting-your-business-from-divorce.html
Perez, R. (2018, March 20). Divorce Bill gets approved by the House of Representatives on Final Reading. Retrieved from https://www.smartparenting.com.ph/life/news/house-of-representatives-approved-the-divorce-bill-on-final-reading-a00041-20180320
SWS. (2018, March 09). Fourth Quarter 2017 Social Weather Survey: 53% of Filipino adults agree to legalize divorce for irreconcilably separated couples. Retrieved from Social Weather Stations: https://www.sws.org.ph/swsmain/artcldisppage/?artcsyscode=ART-20180309165548
Xinhua. (2018, March 09). 53 percent of Filipinos favor legalization of divorce:poll. Retrieved from News Xinhuanet: http://www.xinhuanet.com/english/2018-03/09/c_137028037.htm
 53 percent agreed, 30 percent strongly and 23 percent somewhat, and almost 32 percent disagreed. 15 percent were undecided on the matter.
 Voting tallied to 134 in favor, and 57 against; two lawmakers abstained.