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Most people approach their wedding day with hopes of leading a fairy tale life. However, things do not always work out well, and about 50% of marriages end in divorce, according to wf-lawyers.com. Divorce proceedings can be agonizing, and there is so much going on in your mind about your future. For a business owner, however, the question that most haunts the mind in a divorce situation is how to protect the business.
Your concerns about the future of your business are justified when you’re going through a divorce. However, the best approach is to think ahead. If you have a solid legal foundation, then it becomes easier to stay calm in stressful situations.
In this post, we address the problem of how to protect your business from divorce with some guidelines to help you answer this question.
How to Protect a Business Partnership from Divorce
1. Create a Prenuptial or Postnuptial Agreement
If you want to protect your business from divorce, the best approach is to have a prenuptial agreement or a postnuptial agreement. If you execute the premarital agreement, it can play a crucial role in facilitating a resolution. Moreover, it can ease the anxiety levels of both parties. You can document the agreement in three different ways.
Try to document how your business will get valued, including the asset division that will take place. Notably, the most essential aspect to pinpoint in the agreement is that your business is your separate property, if that is the case. Therefore, it will not get subjected to division.
This can save you from an invasive valuation and protect your business in a divorce. However, you should discuss the premarital agreement with your would-be spouse in detail to maintain transparency.
You can mention in the document that any value that gets added to the business after your marriage will be the marital property. Remember that this decision affects your business. The wise approach would be to limit your spouse’s share. What you need to keep in mind is that a non-titled spouse will only get about 5% of the business value that accumulates during the marriage.
There is another strategy that you can adopt in this situation. You can document that your business and financial matters will not be affected by your divorce. For example, there are many couples who agree to work together professionally despite a divorce.
Additionally, what you need to keep in mind is that a marital divorce does not need to be labeled as a business divorce. To this end, you can label the business as a separate legal entity or an independent legal entity. This strategy works well for small business owners as well as for big company owners.
2. Place the Business in a Trust
One smart strategy for protecting your business from divorce is to put the a business in a trust. The benefit of this practice is that the business does not get counted as your personal asset as you no longer own it.
Moreover, when you put your business in a trust, it protects the growth of your business.
3. Come Up with a Buy-and-Sell Agreement
If you want to protect your business assets, a purchase-and-sale agreement could be the answer for you. This agreement defines what happens to your business if the status of any of the owners changes. When you have such an agreement in place, it will become difficult for your spouse to acquire ownership of the business.
4. Be Ready to Forfeit Personal Assets
As per OnlineDivorce, when a divorce takes place, the total assets of the couple get added up and are divided. Therefore, the best approach is to be willing to forfeit your personal assets so that you can retain 100% ownership of your business.
For example, you can sacrifice your retirement accounts. Alternatively, you could choose to sacrifice the vehicles and family home. You should also be willing to surrender marital assets as well to save your business.
5. Detach Your Spouse from Your Business If You’re Heading for Divorce
You need to have a proactive approach when it comes to your business. For example, if your spouse is actively involved in your business and you are heading toward a divorce, then detach your spouse from your business now.
If your spouse has worked for a long time in your company, his or her case is strong. In this case, your spouse’s lawyer could state that he or she helped build the enterprise and deserves a fair share in the profit.
6. Register Your Business with the State
If you are apprehensive about the future of your business in a divorce situation, then you can create a limited liability company. A limited liability company gets registered with the state, and this protects your small business. The business tends to run under an operating agreement that decides how business decisions will be made.
Also, insurance can help you protect your business in a divorce situation. For this purpose, choose a whole life insurance policy, as this helps to build cash value. Then you can liquidate the cash to provide funds to buy out your spouse’s share of the business.
7. Conduct Your Divorce in a Positive Way
If you and your spouse part ways on a positive note, there is yet another way to protect your business. You can make payments to your spouse over time for his or her share of the business. For example, you could make monthly payments from the cash flow of your business.
You could also take out a loan to make payments to your spouse for his or her share of the business. The benefit of this practice is that you will not be overburdened in this situation, and you can make the payments with little stress.
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Awareness Is Key to Protecting Your Business from Divorce
Awareness is the key to protecting your business in a divorce situation. Who will own which property after divorce will also depend on whether the couple lives in a community property state or common law property state.
Usually, any property acquired by a person under common property law is solely owned by the person and cannot be stated as marital property. When you have essential knowledge, then it can save you from significant trouble during a divorce.
Remember, if your spouse is your business partner, then it will certainly complicate things during a divorce. However, as a business owner, you need to be far-sighted. Keep your emotions out of the mix when it comes to the future of your business.