When the prospect of divorce starts to become a reality, the same question runs through everyone’s mind. How much will I lose? It would be difficult to contemplate having to move out of your home or split up your savings but have you thought about your business? Considering the levels of animosity generated in most divorces, can you imagine having your future ex as a business partner? It can easily happen if you don’t take steps before the divorce is even a faint glimmer on the horizon.
Before you take action to protect your business from divorce you need to consult an attorney.
They will let you know whether you live in a community property state or an equitable division state and the differences between separate and marital property.
Separate property usually includes:
- A gift given solely to one spouse from a third party. This can’t be a gift from the other spouse.
- Property that was owned before the marriage
- An inheritance that was received solely by one spouse
- The pain and suffering payment from a personal injury judgment
- Separate property is normally protected in a divorce but you must be very careful to keep it from comingling with marital property in any way or it will become vulnerable.
- If your business assets fall under marital property then you can protect it by:
- Not letting your spouse become involved with your company in any way. The more they are, the higher chance it has of being viewed as marital property.
Getting a prenuptial agreement – This is a contract signed by both parties that details the property rights of each and what they can expect from a divorce. When done right, a prenup can even override state laws for equitable distribution and community property.
Locking out your spouse – Use partnerships, LLC’s or shareholders to protect your interests. Most agreements of this sort carry provisions that shield the owner in the event of a divorce.
Paying off your spouse – As a last option you can try giving them a larger share of other marital assets in exchange for keeping your business. If the company constitutes the vast majority of marital assets then you may be forced to sell it off and split the money.