Divorce rates in the US hover around 50% within all marriages. Considering the high prevalence, it’s no wonder that many couples—even happy ones—seek ways to plan for the possibility.
If you’re a business owner, you may be concerned about what could happen to your business in the event that you and your spouse decide to divorce. Will you be forced to divide your business assets equally? Will they receive a portion of the business? That could potentially affect your own future, as well as that of business partners, employees and clients.
There are steps you can take to protect your business in the event of a divorce. It’s not a guarantee that no changes will occur, but it can save you the headache of contention and head-butting by setting clear boundaries.
Separating marital property from personal property
First, it’s important to understand that there are certain guidelines, which can vary by state, for how property and assets are divided in a divorce. Business assets are a part of this.
In states with equitable division like New York, property is divided fairly based on judgments of circumstances like investment and length of involvement in a business, as well as earning potential.
If your business began as separate property prior to marriage, any gains and growth during the marriage are likely to have become marital property. Additionally, if you mixed any marital assets with the separately owned business, including re-titling or using a joint bank account for any business operations, the status of separate may change.
Prenups and postnups
Prenuptial agreements are not the most romantic thing, but they’re one of the most reliable ways to protect your business in a divorce. This legally binding agreement makes it clear who’s property belongs to who and what will happen to it if the marriage ends.
If a prenup was never signed, a postnuptial agreement might be a secondary option.
Although postnups are more subject to court challenges than prenups, they’re still a good way to make sure your business has boundaries of ownership and asset divisions if your spouse will agree to sign one.
There are numerous other strategies making it possible to protect a business from divorce contentions, including using different types of shareholder agreements to protect other stakeholders, strategically deciding where to invest your earnings, and even coming to a settlement agreement with your spouse about alternate forms of payments.
An experienced divorce attorney can help you dig deeper into your options.