For many entrepreneurs in Baton Rouge, their business is their principal asset. It may have more value than a residence or a couple’s personal property. Yet, very few business owners take concrete steps to protect their business in the event of a divorce. The state’s community property laws make such planning virtually mandatory.
If the business was started before the owner got married, the business is treated as a personal asset and not community property. However, income earned by the business and any appreciation in value during the marriage is community property. If the business was started after the couple married, it will be treated as community property. If the owner gets divorced, their ownership interest may be divided between the two spouses. The future of the company will be subject to much uncertainty.
Perhaps the safest way to protect a small business is the drafting of a precise and well thought-out prenuptial agreement. Such an agreement can provide that the entire interest in the business will belong to the party who founded it. Furthermore, such a provision will ensure that the spouse who is not involved in the business will never have an interest.
Another method is to create a corporation or limited liability company to own the business. The ownership interest – stock in case of a corporation and member interest in case of an LLC – may become either a personal asset or community property depending upon individual circumstances. Nevertheless, using a formal entity to own the business will make other property division decisions much easier.