How to Protect Your Business in a Divorce

How to Protect Your Business in a Divorce
How to Protect Your Business in a Divorce

When it comes to your business, you don’t want all your hard work to be for nothing. If you are in the process of going through a divorce, you are probably worrying about how to protect your business. You have worked hard to get to where you are, and a divorce could ruin all you have done. A divorce could lead to several unfavorable situations including your spouse becoming a partner or half owner of your business, having to sell the business to pay for your divorce fees, or worse yet, your ex getting the entire business. There’s a lot that can go wrong. Therefore, it’s always wise to have measures in place before your marriage begins to unravel.

In this article, we will discuss all you need to know about how to keep your business safe.

1. Before you get married, sign a prenup.

According to Onlinedivorce, signing a prenup is the best way to protect any future business that you might have. Oftentimes, people get married too young and don’t sign any prenuptial agreements. This is a big problem because some spouses end up building million-dollar businesses over the course of the marriage, and could end up losing it all or half of it during a messy divorce. A prenuptial agreement is signed before your marriage. It states what will happen to your assets in the event of a divorce including property rights and the rights to any future or current businesses. It’s important that your prenup is handled by an attorney. The document is written up and signed before your wedding day. There are some important things that need to happen when signing a prenup.

  • Both partners need to be present when the prenup is being signed. Both parties need to think logically and with their futures in mind, in the event that something should go wrong. No one wants to think about divorce before marriage, but it is wise to do so because it can save a lot of future hassles and legal battles.
  • The prenuptial agreement needs to be signed in front of witnesses or a notary.
  • Remember to be honest and completely open about your current assets. This will save you from losing legal battles later. Hiding assets on legal documentation gets you nowhere. It could cause your prenup to be invalid and could even result in being fined by a judge later on.
  • If you start a business after your wedding day, it will probably be viewed as a marital asset. You should state in your prenup that any business that gets formed after your wedding day will be separate from your marital property. You can even decide how your marital property will be divided.

So the best way to protect your business during a divorce is to have a prenuptial agreement in place. But unfortunately, many couples don’t sign prenups before they get married. In fact, stats show that less than 5% of Americans sign a prenup before marriage. If this is the case for you, you can always sign a postnuptial agreement.

2. Get a postnuptial agreement

Yes, there is such a thing as a postnuptial contract. This is an agreement that you sign after your wedding day. The only problem is that many judges don’t view this as highly as they would a prenup. If you do decide to get a postnuptial agreement, you will need to do it soon after you get married, or many years before you get divorced, for it to hold up in court. Once again, you would want to separate your business from marital assets in order to protect it. You will also have to disclose all the same information that you would need in a prenup. An attorney will need to be present to make sure that both parties are happy and that there are no nasty loopholes.

3. You and your ex can come to an agreement

Another option is if you and your ex can come to an amicable agreement. For example, you could agree to run the business together with a strict contract in place, or one partner could buy the other out. This doesn’t always work, but it is an option for couples who end on good terms.

4. Make yourself the sole owner of the business, set up a trust or use buy-sell agreements

By making yourself the sole owner of your business you can stipulate in a contract that in no event will your business be handed over or divided to your spouse in a divorce. You can add that a cash reward will be offered to the non-titled spouse.

Another option is to put your business in a trust, a partnership, or arrange buy-sell agreements. By doing this you will be protecting your business during a divorce.

It is really important that you do not make your spouse a partner in your company.  In a divorce, your ex could use this to their advantage, even if they had no input in your company. They could lie and say that because they are a director in the company, they are entitled to your profits. Always remember to write everything on paper and have an attorney check out the paperwork.

5. Pay yourself a competitive salary

By paying yourself a market-related salary your spouse won’t be able to say that the extra money belongs to them. For example, if the going rate for your position is $100,000 but you pay yourself $60,000, your ex could assert that the full amount should be paid to you, in order for you to support them during and after the divorce.

6. Pay off your spouse

If your spouse has shares in your business, you could always buy out their portion of the company. This will then make the business yours. You could pay the full amount upfront for their share, pay them off over time, or even give up another asset of yours in exchange for their shares in the company. For example, your ex can have the house, and you keep the business.

7. Keep your spouse’s involvement to a minimum

Right from the start of your business, don’t let your spouse get involved in your company unless you really want them to. The more your spouse is involved in your company, the stronger legal footing they will have to your company.

If you are about to go through a divorce and have a thriving business, always see an attorney to ask for legal help. They will be able to advise you in the best way. They will help you figure out how to protect your business, and how you can keep your company thriving for years to come.

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