How to protect your business during a divorce

On Behalf of | Apr 27, 2020 | Divorce

As a business owner facing divorce, you may wonder if your spouse will receive ownership or income from your company as part of their settlement. Whether your split is civil or acrimonious, this prospect is unsettling. If you’re concerned about protecting your business during divorce, keep these tips in mind.

Ensure your business is separate property

You and your spouse may have drafted a prenuptial agreement before your marriage. In it, you may have declared your business as separate property. By doing so, you will have saved yourself from both an expensive and stressful valuation and from parting with your enterprise’s assets. Or, you may have decided that only the profits your business earned after your marriage count as joint property. This arrangement still protects any assets you held before your marriage, so long as you did not commingle them with your spouse. Yet, you and your spouse might not have drafted an agreement. Or, you may have started your business after your marriage. In these cases, you will likely pay your spouse a share of your company’s value or appreciation, even if they do not receive income from it after you two divorce.

Buy out your spouse’s interest

You and your spouse may be business partners. While some couples can work together after divorcing, many cannot. Your spouse might also own a share in your business, yet doesn’t work there. In these cases, you will want to buy them out. If you decide to do this, your business will have to go through the valuation process. Make sure to account for your company’s tax obligation when valuing it, otherwise the buyout may prove a liability. This scenario may entitle you to a greater share of marital assets than you would otherwise have received. And while you may take a financial loss in the short term, you will have the benefit of independence in the long run.