Protecting Your Business in a Divorce

May 9, 2019

Although no couple enters marriage with the belief that their relationship will end in divorce, unfortunately some relationships break down, and individuals may enter into months or even years of expensive litigation over divorce proceedings. Business owners face particular challenges, as the assets, ownership and interest in your business may be at risk. Any lawyer would advise business owners to have mechanisms in place so your family and your business will not suffer in the event that your union ends in divorce. The goal is not to deny your spouse of their rights to ownership in the business, but to have explicit or implied agreements in place that would make the process of split as amicable and transparent as possible.

First, business owners should have a formal agreement in place, either as a pre-nuptial agreement or post-nuptial agreement that lays out the ownership rights, valuation and other terms regarding the business in case of divorce. These types of contractual agreements allow parties a wide freedom to contract, and the ability to tailor the agreements as they see fit. A common pre or post-nuptial agreement may include that your business is separate property, and therefore may not be subject to division. If the business is an equal partnership, the terms may include who will buy the other partner out in case of divorce or may even provide for the option to continue working together. Another common feature to add in a pre-nuptial agreement is that any added value to the business belongs solely to the business owner. Having these agreements in place at the time of divorce will prevent confusion or surprise during divorce settlements.

Business owners may also choose to protect their business in other ways. One of the best ways to do this is to keep your business and personal expenses separate. Commingling the personal, joint funds of you and your spouse with that of the business can lead to tricky valuation issues in the future. You should also be sure to keep clear records of sources of capital for your business, as well as any cash transactions. If possible, establish yourself as the sole owner of your business, and specify within business documents that the business may not be transferred in the event of a divorce. If you have not taken these measures in your business yet, it is not too late. For more information on safeguarding your business, contact the attorneys at Rock Fusco & Connelly, LLC.