All You Need to Know about Protecting Your Business from Divorce

gavel near two men

None of us wanted to think about divorce. However, according to the CDC’s National Marriage and Divorce Rate Trends, the country’s divorce rate is 2.7 per 1,000 population. That is saying that more or less, 50 percent of first marriages and almost 70 percent of subsequent ones in the U.S. end up in divorce.

Dealing with child custody, alimony, and assets and properties division is hard enough. All the more, it is when there are business assets involved in the picture.

After all, being the spouse who has worked hard in building your empire alone, it seems unfair to lose some of it to an ex-spouse who has contributed little to none to your success.

The Division of Property

Every state varies its laws when it comes to property relations of husband and wife. Nonetheless, determining whether an asset is separate or marital property is the primary concern for the division of assets in a divorce.

There is no problem when your business asset belongs to your separate property. The issue only comes to the surface when such property is deemed marital property. Usually, any property acquired during the marriage is deemed to belong to both spouses.

Divorce proceedings in Denver are less tedious because it is a “no-fault” divorce state. It is also an “equitable division” state, meaning whatever property couples acquire is deemed to be part of the marital property.

This is where the problem lies. Only one of the spouses put in hard work in building the business, and the other barely or even never contributed to the business’s success.

To prevent this scenario from happening, it is important to put in measures as early as before getting married or during the early stage of your marriage.

Ways to Protect Your Business

The best time to take measures to protect your business from divorce is before entering into marriage or during the early stage. Having a well-thought plan means having enough pre-emptive strategies up your sleeve to help you retain control of your business.

These are some of the things you can implement to protect your business in case of divorce.

man holding a document

1. Enter a Prenuptial Agreement

Assigning your business as a separate property in a prenuptial agreement is the most effective way to protect your business assets from divorce.

With a well-written prenup, you are certain that you retain total control of your business, and it remains your separate property even though your spouse may have some contribution.

Apart from a prenuptial agreement, other measures should still be employed as a backup.

2. Sign a Postnuptial Agreement

If, however, you were not able to come up with a prenuptial agreement, you may still provide protective measures to your business with a postnuptial agreement. It is essentially the same as a prenup; the only difference being it is signed after the marriage.

Postnuptial agreements are better signed long before the parties plan on filing for divorce. Otherwise, the courts might question the postnup. It is a common practice that this type of agreement is entered into during the early stage of marriage.

3. Ensure a Buy-sell/Operating/Partnership/Shareholder Agreement

When your business is a limited liability corporation, a partnership, or a corporation, having provisions covering instances when any of the owners get divorced is a must. It should cover subjects relating to buying-selling, operating, partnerships, and shareholder’s rights.

These are some of the provisions your business should consider:

1. The requirement to all partners to enter into a prenuptial agreement waiving their spouse’s interest in the business.

2. The limited ability of a spouse to acquire ownership and denial of the spouse’s right to vote.

3. Prohibition on transfer or sale of any ownership interest of a partner to a third party without the consent of others in the partnership/ LLC/ corporation.

4. Place Business in a Trust

A radical option you can do to protect your business from divorce is to put it in an irrevocable trust. Doing this prevents the business asset from becoming a marital property since, essentially, it is not you who owns it.

Nonetheless, you could only do this before entering a marriage. Else, doing it after converts the business as marital property and the court might consider it a fraudulent transfer.

One drawback of putting your business in an irrevocable trust is that you cannot take it back. The business will essentially remain in the trust forever.

Divorce is a difficult process anyone can undergo. These tips, though, can somehow help ease up the burden when dividing properties and other assets.

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