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How to divorce-proof your business

On Behalf of | May 19, 2020 | divorce |

If you own your own business, you most likely have put a lot of effort into making it successful. You often face important decisions that will affect your business’ future. However, one area you might not realize you need to address is protecting your business in case you get divorced.

If your business isn’t protected, you could be forced to liquidate the business or other assets in order to give your ex-spouse their share of the business’ value. In Louisiana, a community property state, your spouse will be entitled to half your business’ worth if it’s considered marital property. If anything from your business is in both your and your spouse’s name, it will qualify as marital property. Also, if you used funds from a joint account to launch the business or help it grow, then your business assets will be considered marital property.

So, how can you protect your business?

Prenuptial agreements

First, the best way to divorce-proof your business is to do so before you wed. You can draft a prenuptial agreement before you marry that dictates the business’ assets and could keep your business as separate property. Or, if your soon-to-be-spouse will be helping with the business, you can determine how the business will be divided in the case of a divorce.

Postnuptial agreements

It may seem awkward to ask your spouse for a postnuptial agreement, but this is another way you can protect your business in case of divorce. A postnuptial agreement can establish the same division of business assets as a prenup or even update the terms of a prenup. Keep in mind that contributions to the business prior to creating this agreement could still affect whether or not your business is considered marital property.

Set up a trust

If you are launching your business after marrying, you can set up a trust as the owner of your business. In fact, you can even transfer business assets to the trust if you decide to make this move after your business is running. A trust is a separate legal entity from yourself and yet can own real estate and bank accounts.

Pay yourself a competitive salary

To lessen the impact of divorce on your business, you need to pay yourself a competitive salary. If you don’t reinvest all profits back into the business, your spouse could claim that you didn’t provide any income to maintain your household.

In any one of your potential business protection options, you have the opportunity to set provisions that protect your business assets. With a little forethought and planning, using one of the options noted in this article, you can protect the business well before you and your spouse might decide to end your marriage.