How to Protect Your Business in Case of Divorce

On Behalf of | Oct 18, 2019 | Firm News

Entering into a business partnership with your spouse or even employing your spouse at your business may seem like a wonderful idea at first, but lines can become gray all too quickly. Which partner is responsible for which business responsibilities versus which home responsibilities? Is one partner bearing the burden alone? These are questions one might ask when the marriage is in good standing.

However, according the American Psychological Association, about 40 to 50% of marriages end in divorce. What happens to your business assets then?

What could happen to your business

  • You could remain business partners or shareholders in the company
  • You could buy your spouse out
  • You could sell the business and divide the profits

What to do to protect your interests

  1. Consider the possible consequences carefully before going into business with your spouse. It could create stress and tension in your marriage. In the event of divorce, it becomes extremely difficult to differentiate your assets from your spouse’s. You might not agree with the court’s assertion of how much of the business belongs to you and how much belongs to your spouse, and, at that point, there’s nothing you can do.
  2. Sign a prenuptial agreement. This clarifies issues such as what assets go to whom and often overrides equitable divorce laws, as long as the prenup is legally binding.
  3. Form a legal business entity such as an LLC, corporation, or Buy-Sell agreement. This would safeguard your business because it would likely necessitate some form of contract between the other parties or partners to guarantee that one another’s spouses would not simply be handed the business in the event of a divorce.
  4. Buy out your spouse. Whether you do this with the other marital funds you receive in the settlement or you and your spouse agree to a payment schedule over time, you would fully own the business again–the ideal scenario.

Divorce is not something most couples want to consider, especially before marriage (as is the case with a prenuptial agreement). Yet as a business owner, forethought and planning must be a priority for you. Consider these tips and prepare for every possibility.