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Ways to protect your business from the risks of divorce

On Behalf of | Apr 18, 2024 | Family Law |

If you own your own business, the best time to determine how it will be affected by the divorce process is before you get married, with a prenuptial agreement. If you’re already married when you start the business, you can achieve the same goal with a postnuptial agreement.

You don’t have to think of these efforts as protecting your business in case of a divorce so much as detailing how it will be handled should your marriage end. This can save both you and your spouse time, money and stress later (if/when a divorce occurs) and help you focus on other divorce-related matters at that time.

What should be included in a marital agreement?

A prenup or postnup can address a number of questions. For example:

  • Is the business separate property or marital property?
  • What is the value at the time of the agreement, and how will it be determined at the time of the divorce?
  • If the spouse will be contributing to the business, even if they don’t have an ownership stake, what percentage of the value added during the marriage will they get in a divorce?

If the non-owning spouse contributes time, labor and/or capital to the business, keep records that you both agree are accurate. Like all separate property, a company can become marital property if the other spouse’s or marital funds are commingled with it. The same can be true if they contributed time.

If there’s any chance that a business could be considered marital property, you might want to include something in your prenup or postnup about whether the non-owning spouse can seek a share of the business itself in the divorce or even buy you out.

This is just one scenario. If you own a business with one or more partners or if you and your spouse co-own a business, there are other contractual protections you can put in place. This is often required when there are non-spousal co-owners of an enterprise.

What’s crucial, whether you’re considering a prenup or postnup – or you’re already at the divorce stage with no contracts specifying how the business will be handled – is to have experienced legal guidance to help you protect your business. Depending on the unique circumstances of your situation, a variety of approaches may be employed to help you reach your goals.