Divorce can be highly complicated, and for various reasons. Figuring out what sort of custody arrangement is best for your child can be complex and disputed, and coping with the emotional turbulence that often accompanies marriage dissolution can be tough. But the divorce process can be even more challenging if you own a business. During the property division process, there’s a good chance that your spouse will try to latch onto the business as a way to secure wealth that they can use to support themselves moving into the next chapter of their life, which can leave you with far less than you anticipated. It can also completely devastate your business.
That’s all certainly stressful to think about, but don’t allow yourself to slip into despair at the thought of losing your business. Instead, now is the time to consider what steps you can take to divorce-proof your business as much as possible. That way, if and when the time comes to end your marriage, you’ll be in a stronger position to shield what you’ve worked so hard to build.
How can you protect your business from divorce?
There are several options here. Some are best implemented from the beginning of your marriage, while others can be utilized leading up to your divorce. Let’s look at some of them so that you know what you can do to protect your interest moving forward:
- Enter into a prenuptial or postnuptial agreement: If your spouse is willing to enter into one of these agreements, then this may be your best option. Here, either before or after marriage, you and your spouse enter into what is essentially a contract that dictates how assets will be divided in the event of divorce. Within the terms of the agreement, you can specify issues like how the business’s appreciation will be handled and how “contributions” made to the business by your spouse will be defined. This will give you greater protection and allow you to more easily keep your business assets out of the property division process.
- Keep your business finances separate from your martial finances: If you entered your marriage with a business, then you’ll be in a stronger position to argue that it has remained a separately owned asset if you keep your business accounts separate. Clear documentation can show that you haven’t commingled business funds with marital funds, and you should avoid using marital assets to back business loans. If you can, refrain from using marital funds to purchase items related to your business so that you maintain those clear boundaries.
- Pay yourself a salary: By paying yourself a fair salary, it’s easier to argue that your spouse hasn’t been deprived of support during your marriage. If you reinvest all your income back into the business, on the other hand, your spouse will be in a strong position to claim that you inadequately supported them during the marriage or otherwise caused them to sacrifice, which may land you on the hook for dividing your business or paying spousal support.
Get a handle on your business during divorce
These are a just a few of the ways to protect your business when divorce is on the horizon. If it becomes apparent that you’ll have to sell your business, then be sure to get a fair valuation so that you don’t lose out on the sale. Otherwise, be sure to fully vet your options so that you can craft a compelling legal strategy that protects your interests. Hopefully then you’ll be able to start the next chapter of your life on firm financial footing.