Divorce can be messy and difficult for everyone involved: the couple, their family and friends, and, for small-business owners, even their business partners and employees. When a business becomes part of a divorce, owners can end up losing all or part of their business. It can be hard to understand what property is subject to division and how to go about protecting your business assets. The good news is there are legal measures business owners can implement to protect their small business in a divorce. Here is everything you need to know.
If a business is included in a property dispute between two divorcing couples, a few things can happen. If one person owns the business outright or with their partner, they stand to lose part or all of the business through divorce proceedings. If the business owner is in a partnership with non-family members, the financial and business damages can extend to business partners. To prevent a former spouse from interfering with a business, the owner(s) can face debt to keep their full ownership. Even if ownership is not in question, all the ill-will and uncertainty that can come with divorce can distract owners and their employees from the well-being of the business.
As with most legal matters, the best way to protect your business is to be proactive from the start. No one plans
to get divorced, but if it does happen it is important to know your business will be protected. Forming your business as an LLC or a C-corporation will allow you to title real estate and other property to the business. Establishing this formal structure will prevent assets owned by the business to be split up during divorce proceedings. A prenuptial agreement can also protect your business during a divorce by contractually binding your spouse from seeking ownership over your business, property, or other assets.
If you are already married, you could create a postnup. A postnuptial agreement is similar to a prenup but it happens after a couple has already said “I do.” This is an agreement that would designate assets as separate property or outline how the assets would be divided in the event of divorce. If this isn’t an option for you, you should at least get a good idea of what property is considered individually held and what property is shared. Property acquired or grown during the marriage—including your small business—is normally considered marital property, which is subject to division in divorce proceedings. This way, you have a good understanding of what you could lose in a divorce from your spouse.
Even if you are already in the process of divorcing your spouse, you can still protect your business. While most marital property is subject to division in a divorce, you can negotiate in court for an uneven division of property. Obtaining a valuation for the business can help you determine how much the business is worth and how that worth has increased during the marriage. Working with an experienced attorney can help mitigate the time, risk, and some of the stress throughout this process.
Even the most prepared business owner can face challenges when going through a divorce. Having the support and expert legal advice of an experienced attorney can be essential to getting through the divorce process. Veitengruber Law is experienced in asset protection. We can help you protect your small business and avoid this challenging situation.