Divorces are messy, and while some are amicable, many become contentious. Because of this, many male business owners are afraid that they’ll those their business during divorce.
If your spouse agreed to sign a prenuptial (before marriage) or postnuptial (after marriage) agreement, you already have a leg up. The agreement could state that the business remains only in your name, and is not subject to division.
If that statute is unattainable, you could propose that while the business remains as your sole property, any increase in the value fo the business after marriage becomes marital property. Also, you could assign a percentage of the business’s value to your spouse, say 7%. That means if you get divorced, your nontitled spouse is entitled to 7% of the company’s total value.
What if I don’t have a pre or postnuptial agreement?
If you never came to an agreement with your spouse or chose not to broach the subject, you’ll have to take different steps to divorce-proof your business.
The first thing you want to do is assign yourself as the sole owner fo your business, specifying that the company cannot be divided or transferred upon divorce. The sooner this is done, the better. In addition to assigning sloe ownership, take the following steps:
- Keep your business and family expenses separate.
- Make sure all transactions, even cash dealings, are well documented.
- Hire an accountant.
- If able, pay yourself a salary appropriate to your business’s valuation: Saving is smart. Over-saving can lead to divorce trouble. If your business valuation is high, but you only pay yourself a very modest wage hoping to live the good life with your spouse in retirement, during divorce, your future ex will be aware of this and will seek her share of the money.
- If your spouse works at your company, ease them out as soon as possible. The longer your spouse works at your company, the more entitlement they will have to its assets.
- If you can part with some, give up other assets to protect your business. With Minnesota being an equitable distribution state, assets are divided according to the judge if the divorce reaches litigation. Being able to give up vehicles, property, heirlooms, or some investments could save your business.
- Make sure your business is fairly valued: A court-appointed valuation will occur. After this happens, seek an outside opinion before you agree to the terms. The court’s assessment could project years of growth instead of its current valuation.
- Obtain life insurance policy: You can use a policy that builds cash value to buy out your spouse’s shares of the business.
Lastly, place your business in a trust. Doing so sets the trust as the business owner, removing it from being labeled as marital property. The more you can do to separate the business from your partner, the better.