Nobody wants to think about divorce, and no couple usually wants to think about it either. As dark as it sounds, there is always a chance that it could happen to you and your spouse. One of the most important aspects of getting a divorce is protecting your assets, specifically your business, stocks, and other important investments that you have going on in your life.
Even before anything happens in your marriage, preferably before your marriage, it’s best to look into protecting what you already have. If you’ve worked so hard to build your business alone, you wouldn’t want to deal with losing a part of it to a spouse that has little or nothing to do with the success of your business, right? So these are some helpful tips for protecting your business from divorce.
Sign a prenup
Each country will have its own rules and ways they go about proceeding with assets. So it truly depends on the location. But for the most part, if you’re able to, try and get a prenup. Signing a prenup is the most effective way to protect your business from a divorce. A well-written prenup is going to help ensure that your assets, such as your business, as well as your partner’s assets, will all remain separate property no matter how much you or your spouse contributes.
Even if you have a prenup, it’s still best to look into other strategies as well to ensure that the prenup is valid as long as possible and that it will cover your business. Look into hiring an attorney to help you out with this.
Sign a postnuptial agreement
A prenup is usually signed before marriage, but your options don’t have to be limited. You can sign a postnuptial agreement after marriage. These are very effective as long as they are signed before one of the parties files for divorce. That doesn’t mean that a postnuptial agreement won’t be recognized if it’s signed during a divorce proceeding, but it will be questioned and it may not protect all assets. So it’s best if you’re wanting one of these agreements to be enforced, to have it signed as early as possible in the marriage.
Keep your spouse out of your business
This could potentially help in the case that you’re going through a divorce. But if you and your spouse agree that they will have zero involvement in your business then it’s best to keep it that way. However, it’s best to look into getting a prenup for this type of agreement as it’s far more difficult to prove. But this can have a better outcome for a business owner if your spouse is excluded from the business from the beginning.
Get a valuation
When divorce is inevitable, there will be a court-appointed valuation. But you should be able to choose to have an independent valuation as well. A business is valuated to get a better idea of how valuable it actually is. It’s best to have your business evaluated before a divorce proceeding even begins. It’s best so you can better prepare for planning out everything.
Sell the business
It’s far from desirable but one option you could have would be to sell your business and divide it. It may be a difficult situation but there have been plenty of business owners that have had to resort to doing this. Sometimes, a business is the only asset that the business owner has. So if the business is sold off, then half of your money could go into starting a new business. It’s not ideal, but if you’ve worked your way up into making one business successful then you could do it again most likely.
Pay yourself a real salary
It’s so important to keep household/ living expenses separate from the expenses that go into your business. This even includes giving yourself a real salary. Usually, business owners tend to give themselves very little money and they’ll put the rest into the business. Not only will this cause major disagreements in a marriage but it can also be used as an argument during the divorce proceedings itself. Make sure to keep finances completely separate in your marriage/day-to-day life.
Try to give yourself a stable salary that can go towards your home and family and also keep a separate amount that will be put into the business. The more money you invest into your business and the less money you invest into your home, the more entitled your spouse is going to be to your assets and the bigger the portions will be as well.
Look into putting your business into a trust
This could be something to do, however, it’s best to put your business into trust before you get married to your spouse. Trying to put your business into a trust after marriage will make the business be considered marital property. This means that the court could flag this as a fraudulent transfer. If it does get flagged, then there could be a chance that you’ll need to pay a large portion of the business to your spouse.
Another downside to having a trust is the fact that you’re unable to revoke the trust, so it will be in trust as long as the business is alive. This is a difficult repercussion, as it’s only suitable to do before marriage and on top of that, it’s unable to be revoked. Discussing this with an attorney could help you in laying out your options for protecting your business.
Create a Buy/Share Agreement
If your business is in a partnership, corporation, or even an LLC, then this could help. Your business would then have a buy-scale operation agreement (or even partnership or shareholder agreement too) that is put into place. There are protections for the business if a spouse gets the business during divorce proceedings. Some of the agreements that could be put into place to protect the business if it’s in a buy/share agreement could include:
- Denying voting rights
- Prohibiting owner from transferring or selling estate
- Limit spouse ability in acquiring ownership
- Prenups waive all spousal interests in the business
These are just a few examples, but they can help protect the business in case of a divorce.