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5 ways to protect your small business in a divorce

On Behalf of | Aug 26, 2019 | Family Law

Marriage and business ventures both require hard work, communication and sacrifice. But the end of a marriage does not need to compromise the future of a business that you’ve worked hard to build. While disputes over business valuation and assets are common during the divorce process, there are ways to protect the organization and your own interests.

If you would rather avoid having your ex as a business partner or seeing the business sold to raise cash, there are several important steps you can take to divorce-proof your business:

  1. Put it in writing. One of the most effective ways to avoid messy ownership disputes is to sign a prenuptial or postnuptial agreement. You can specify that the business belongs to one spouse or set guidelines for how it will be divided or valuated in a divorce.
  2. Keep your organizing documents organized. Even without an existing agreement, it is possible to specify in your business’ organizing documents that it cannot be transferred in a divorce. In this situation, the nontitled spouse may receive a cash payment as an alternative to stake in the business.
  3. Keep business and family finances separate. Keep records of whether separate or marital funds paid for office space and other start-up costs. Maintain a separation between personal and business funds separate to ensure your attorney can paint a clear picture of your financial situation and each spouse’s right to the business.
  4. Pay yourself well. Many business owners pay themselves a modest salary. However, if a court finds that your salary was below an industry standard, the judge may adjust your salary for the purposes of calculating spousal support.
  5. Have insurance. A life insurance policy may be liquidated to buy out a spouse’s share of the business, if possible.

Whenever possible, it is wise to have discussions about business ownership early in the marriage. This can keep the exchange respectful and productive while giving both parties peace of mind that their interests will be protected.