How To Safeguard Your Business In A Divorce

With all of the time, energy and resources you have put into it, your business is probably the most valuable asset you own. What many people don’t realize, however, is that they jeopardize everything they have worked for when they don’t take the right steps to plan for a contingency like a divorce. In a divorce, a business owner or partner could lose up to 50 percent of the value of their business to a former spouse, even if that person didn’t have any influence over the business. This could result in the unintended consequence of having the ex-spouse become an unwanted business partner.

In order to avoid this situation, business owners and partners should take steps to protect their interests in advance. This can be accomplished in the following ways:

Sign a Prenuptial Agreement

A prenuptial agreement can override the state’s equitable distribution laws which would award your former spouse a share of the business in a divorce judgment. The agreement will make it clear what will be treated separate property, what property will be considered joint property, and how it should be divided in the event of a divorce.

If you are already married and never signed a prenuptial agreement, a postnuptial agreement is still an option that can achieve the same purpose.

Consider Using an Entity

This arrangement can effectively “lock out” a spouse from becoming an unwanted business partner if any of the partners get a divorce. Usually, this is achieved by requiring any partners who aren’t married to sign a prenuptial agreement and requiring the future spouse to sign a document waiving all rights to a future interest in the business. This strategy can also prohibit the sale of shares of the business without the approval of the partners, or grant the shareholders the right to purchase shares owned by divorcing parties.

Pay Yourself a Fair salary

If you end up reinvesting most of your earnings into your business, this could give your spouse an excuse to demand more money or a larger share of your business at divorce on the grounds that they lost out on potential income.

Whether you are a business owner who is soon to be married or are already married and looking to secure your business interests, Modern Family Law can help. Our Colorado divorce lawyers are prepared to review your case for free and recommend the option that best suits your needs.