Strategies to protect your business in a divorce

| Nov 6, 2020 | Divorce |

When you divorce, you and your spouse must decide how to divide your assets. 

Forbes explains that property division can pose challenges if the assets at stake include your business. You may protect your interests if you plan ahead to safeguard the company you have built. 

Maintain separation between your business and your household

Prudent business owners maintain accurate books and records. You want to create a paper and money trail that shows your business assets are separate from your personal assets. 

Sound business practices may preserve your interests if your spouse claims that marital property helped fund your venture: 

  • Keep track of funding sources. Were shared marital moneys used to fund company expenses? 
  • Do not commingle business and individual accounts. If you invest marital money into the enterprise, note the source and amount. 
  • If your business allows, pay yourself a market salary. If you underpay yourself, your ex may argue that market salary should count as income to determine support. If your spouse works for you, pay him or her a market salary. If you fail to do so, your ex may assert a share of your company’s value. 

Ensure that your entity documents identify you as the sole owner. Include a clause prohibiting a transfer of business assets in the event of divorce. 

A prenuptial or postnuptial agreement may protect your business

Before you marry, consider a prenuptial agreement to address how you and your spouse will handle a business division in the event of divorce. If you launch your firm during marriage, you could consider a postnuptial agreement to manage division issues. Any prenuptial or postnuptial contract should set out clear expectations and conditions for dealing with your business if you and your spouse part ways. 

If you operate your business as a partnership with your significant other, your partnership agreement may anticipate a buyout arrangement in the event of divorce. 

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