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Planning ahead to protect your business in divorce

On Behalf of | Oct 18, 2019 | Property Division |

Dividing your marital assets in divorce is always difficult. You and your spouse must either agree on how to equally split your shared assets or let a judge decide. But when you’re a business owner, property division in divorce becomes even more complicated.

When your business contributes to the financial stability of your family, a court can consider it marital property. A court can award your spouse ownership in the business. Or they can expect you to give up other assets to your spouse to make up for the value of your business. Having a clear idea of the business’ value and a little planning can make sure that your business is not unfairly split in a divorce.

Planning ahead: using a prenuptial agreement to protect your business

When you prepare for marriage, you may not expect to divorce. Unfortunately, many marriages do end. Planning for a divorce with a prenuptial agreement can make sure your business stays safe from property division.

A prenuptial agreement should clearly define that you own your business separately. It should also state exactly how much value your business has and how to value it if you divorce. The agreement can also define how your divorce will divide business income.

If you start a business during the marriage, you can also create a postnuptial agreement. This will serve the same purpose as a prenuptial agreement.

When you don’t have an agreement

If you and your spouse didn’t fill out an agreement, you can still help your business stay separate. Keeping a separate business account makes sure that your business money doesn’t commingle with your marital property. You should pay yourself a salary that reflects your position in the business. And any money put towards your business should not come from your personal account.

You should also try to agree with your spouse on how to value your business. If your spouse thinks it is worth more than it actually is, he or she may try to get more out of you in the divorce. A fair valuation makes sure that you only pay what you can.

When you divorce, your business can be up for division. Planning ahead to protect it now may help you if you end up divorced.