Those who own businesses know that success requires a lot of careful planning and hard work. When planning for the growth and sustainability of their businesses, business owners may not stop to think that one they need to plan to safeguard their companies in case they get divorced. Many business owners end up losing part or all of the businesses that they have devoted so much time and energy making thrive due to divorce. However, with some forethought business owners can shield their businesses from being part of a divorce property settlement.
Prenuptial agreements
One way to help ensure that a business will not become involved in a property settlement dispute in the event of divorce is by entering into a prenuptial agreement. A prenuptial agreement spells out the way that a couple will divide property if they divorce, and the spouse that owns a business can negotiate the agreement so that the other spouse renounces any claim to the business itself. Usually, the other spouse will get other marital assets in the agreement instead of the business to ensure that the agreement is fair and more likely to be enforced.
Marital property
Business owners should understand the difference between marital and separate property. Separate property is what people owned prior to marriage, inheritances received by only one spouse and gifts to one spouse by third parties. Marital property is everything else that the couple acquires after marriage. However, people can turn non-marital property into marital property by commingling it or using marital funds to improve non-marital property.
Those who started their businesses prior to marriage can take steps to ensure that their spouses have less of a claim to the business as marital property. Business owners should pay themselves a competitive salary so that their spouses cannot claim that the business owners poured marital funds into the business. Business owners should keep family and business finances as separate as possible, and maintain detailed records of financial transactions. Business owners should not have their spouses work for the business, as their spouses can then say that they contributed to the success of the business and deserve part of the business.
Business agreements
Those who own businesses with partners should consider setting up business agreements to protect the business if any of the partners divorce. As a condition of ownership, the business could require all unmarried partners to sign prenuptial agreements protecting the business if they do get married. The owners should also enter into buy-sell agreements so that the other business owners have the right to buy out another partner’s share in the event of divorce so that the business does not go to the partner’s ex-spouse.
If you are a business owner facing divorce, speak with an experienced divorce attorney who can advise you about the best way to minimize the impact on your business.
