Owning a business is incredibly rewarding, and a divorce can potentially jeopardize all of the hard work and investment you have put toward making your business a success. If your business is doing well but your marriage is on its last legs, it’s important to take a few steps to ensure your continued ability to own and manage your business and achieve the fairest results possible with your divorce agreement.
Nearly half of all marriages end in divorce today, and business owners across the country should know what to expect if their marriage comes to an end. It’s not uncommon for business owners to lose large chunks of value from their businesses in divorce due to a lack of legal foresight or unexpected financial entanglements between their business and personal accounts.
Prenuptial Agreements
Although some people look at prenuptial agreements disdainfully, the reality is that these agreements can help set rights, responsibilities, and expectations in order prior to a marriage beginning. A prenuptial agreement is basically a detailed marriage contract that typically revolves around the marrying couple’s finances. For example, if one of the spouses owns significantly more assets than the other, the prenuptial agreement may not allow for the lower-earning spouse to make certain financial demands or property claims should the marriage come to an end.
When it comes to running a business, a prenuptial agreement can be a useful asset that protects a business owner. If the business owner’s spouse never contributes to the business, does not become an employee of the business, and the business owner does not commingle business assets with personal assets, then the business owner should retain full rights over the business if their marriage comes to an end. A prenuptial agreement allows the business owner to get this in writing.
Separation of Assets
One of the most common areas where things can go wrong for business owners is the commingling of business assets with personal assets. As a general rule, it is always best for a business owner to keep business accounts completely separate from their personal accounts. Once a business owner uses a personal account for business purposes or mingles revenue from the business into a personal account, those business assets could become fair game in divorce proceedings.
A financial advisor can help a business owner determine which assets are most likely to count as business or personal assets and help develop a financial plan that ensures minimal commingling of personal and business assets.
Maintain Meticulous Business Records
Divorce aside, it’s a wise idea to keep careful records of every aspect of your business. Detailed financial records can be a fantastic asset in various circumstances, including your divorce. You will be able to easily prove all of the financial contributions and sacrifices you have made to run your business and generate growth, and these records can also prove the full extent of your ex-spouse’s involvement with your company.
Remove Your Spouse from the Business
If you owned your business prior to entering your marriage and then your soon-to-be ex-spouse started working for you during your marriage, it’s important to edge them out of the business as soon as possible. Easing your spouse out of the business cuts down on the time he or she spent working for and improving the business, which amounts to a weaker bargaining position in divorce proceedings. If your spouse spends a significant amount of time working for your business, they have more room to argue they are entitled to a share of its future success.
Consider Using a Trust
If you have a family member you can rely upon to act as a trustee for your business, then you don’t need to worry about the business coming into play during divorce proceedings. The business remains in the trust and therefore does not count as your actual property, but it continues to generate value and revenue.
A trust requires a neutral and trustworthy third party to act as the trustee for your company. This is not a decision you should take lightly, so it’s best to consult with a business attorney if you have questions about placing your business in a trust.
Prepare to Negotiate
There may be some circumstances in which you are unable to fully excise your soon-to-be ex-spouse from your business, and so you will need to brace for the eventual property division negotiations that your divorce proceedings will entail. Just like holding onto ownership over the family home, retaining control and sole ownership over your business may require you to sacrifice other pieces of property in the exchange. Ultimately, if the court decides that your spouse has any entitlement to a share of your business, you will need to effectively buy them out of their share, and this can be incredibly costly for some businesses.
Leaning on Your Business for Support Agreements
Although it may be surprising to hear, the truth is that businesses are rarely divided in a divorce, especially if the business owner will be responsible for spousal support or child support payments. If the business owner must sell their business, they may be unable to complete required payments, so the other spouse may completely let go of any thoughts of pursuing ownership of the business to ensure their support agreement continues uninterrupted.
Hire Reliable Legal Counsel
One of the best moves you can make to protect your company from your divorce is to hire an experienced divorce attorney. The right attorney can help to connect you with helpful financial advisors and business consultants who can provide their professional opinions of your situation and help you make a more informed decision. Your attorneys can also assist with the development of prenuptial contracts, postnuptial agreements, business contracts, and many more aspects of running your business.
Your attorney can provide useful information for legal and viable methods of protecting your business assets from your ex if there is any reason to believe they will expect a slice of your company after divorcing. Whatever your circumstances might entail, it is best to connect with an attorney as soon as possible to start discussing your options for protecting your business from divorce proceedings.
