Divorce can put your business at risk, especially if it’s considered a marital asset. Without proper precautions, you could lose partial or full ownership. Protecting your business requires planning and strategic legal steps.
Establish a prenuptial or postnuptial agreement
A prenuptial or postnuptial agreement can clarify business ownership. These agreements outline how the business will be handled in case of divorce. If your business was started before marriage, a prenuptial agreement can confirm it as separate property. A postnuptial agreement can define ownership terms even after marriage.
Keep business finances separate
Mixing personal and business finances can make it harder to prove that your business is separate property. Maintain distinct accounts for business transactions. Avoid using business funds for personal expenses or vice versa. Proper record-keeping can help show the business operates independently.
Pay yourself a fair salary
Underpaying yourself while reinvesting profits into the business can backfire. If you don’t take a fair salary, a court may assume your spouse contributed financially by allowing the business to grow. Paying yourself a reasonable wage helps show the business’s true value and reduces claims that your spouse supported it indirectly.
Define business ownership in corporate documents
If your business has multiple owners, including a buy-sell agreement or operating agreement can help protect your share. These documents may include restrictions on transferring ownership in the event of divorce. They can also prevent an ex-spouse from claiming a stake in the company.
Get a business valuation
If your business is considered a marital asset, a proper valuation is necessary. A neutral financial expert can assess the company’s worth, preventing an inflated valuation that could cost you more in a settlement. A fair valuation helps in negotiating an equitable division.
Consider a settlement trade-off
If your spouse is entitled to a portion of the business, offering other assets in exchange can help maintain control. Trading real estate, retirement funds, or other assets may allow you to keep full ownership. This approach can prevent disruption to business operations.
Protecting your business requires proactive planning and clear financial boundaries. Taking these steps early can help safeguard your company’s future.
