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How you can protect your business during a divorce

On Behalf of | Apr 12, 2019 | Uncategorized

You can say a lot of things about people in their 20s, but two things you can say for certain: Many want to define their business future by starting a company, and many want to define their personal future by getting married.

What happens years later when those competing interests collide? In other words, how can you protect your business when you get a divorce?

Virginia is an equitable distribution state

For the most part, what you bring in to the marriage is what you can take out of the marriage. In Virginia, money earned and items acquired after your wedding are called “marital property” and, during a divorce, should be divided fairly between the couple.

What do you do about a business? Even if a business was started before the marriage, income or assets acquired during the marriage may be considered marital property.

There are a few ways you can protect your business during a divorce:

Get a prenup. The most effective means to protect your business during a divorce is a prenuptial agreement, or prenup. This contract spells out what each member brings in to the marriage and, more specifically, what each member can take out of the marriage. Since a prenup is agreed upon before any marital property accrues, it can provide a bulwark against claims on your business after the marriage ends.

Use an ownership agreement to lock out your spouse. When you start your company, include shareholder, partnership or buy-sell agreements that require you and your partners to enter into a prenup, or require the approval of all shareholders or partners before any shares are transferred.

Pay yourself a suitable salary. If all the company’s profits are put back into the business, then your spouse can claim that they supported you and now can share in the worth of the business. This claim is harder to make if you brought a suitable salary into the household.

Keep your spouse out of the business. If your spouse is employed by or contributes to your business, then it becomes marital property.

Offer other assets instead of the business. Instead of half the business, perhaps your former spouse might like cash, stocks or real estate?

No matter which course you take in your 20s, you will likely reap the benefits or problems of your decisions later in life. It’s always better to make contingency plans, and a lawyer can help you sort out your options.