Horror stories abound of individuals who have spent years building up a profitable business losing it all during a divorce. Courts look at a lot of things when deciding how to divide property, and even though you may have owned your business before you got married, you may face having to divide it along with your other assets.
Nobody plans on their marriage ending in a divorce. When it comes to something large, like your business, you will ideally have protections in place before going into the marriage. If you don’t, hope is not lost. It just will require more planning. Here are four ways you can avoid losing it all.
1. Consider a prenuptial agreement
The best protection you can have for your business is to have a prenuptial agreement in place. Make sure you avoid some of the common mistakes that people make regarding this. If you both agree that assets coming into the marriage belong solely to the individual, get it in writing and have it notarized.
In some cases, you can work out a post-nuptial agreement, but be careful to make it clear both spouses agree before signing.
2. Keep records
Financial records may be your biggest proof of who has the most investment in your business. Make sure you keep records of any money put into the business and keep those records completely separate from household records.
If you can prove that the business was in no way affected by marital funds, then the court is more likely to see it as your personal asset. Make sure any loans or other money put into the business are in your name alone.
3. Don’t mix family and business
Some people believe working together in the business makes a couple closer, but this can put the business in jeopardy during a divorce. Do not hire your spouse to work in the business. Keep all aspects of it in your name. Any time and money contributed by your spouse will be considered adding to the value of the business, making it more divisible during divorce.
4. When you must, compromise
If it comes down to having to consider your business part of the marital assets, offer to give up an equal share of some other asset. Maybe your spouse would accept the family home and car in exchange for you keeping the business. Equal division of assets doesn’t have to mean every asset must be divided, it only means the total amount needs to be equal.
The best time to protect your business is to act before there is even an issue. A legally executed prenuptial agreement is your best chance. With forethought and an understanding between marriage partners when things are going well, divorce does not have to see you losing something you have put years of time and money into growing.