How to Protect a Business During a Divorce

No two people go into a marriage, believing that their loving relationship will end in divorce. But many happily married couples with significant resources here in Texas put protections in place in case of divorce.

These high-asset marriages can avoid a potentially bitter fight over marital assets, which is especially important when one or both parties own a business.

Divorce can compromise family-owned companies

Dissolving a marriage can have disastrous effects on a business in several ways. First, it’s nearly always a disruptor for the owner or owners as the divorce process vies for their attention, keeping them from focusing on their management duties.

Next, it’s worrisome for employees and business partners. If your company is divided during a divorce, what type of financial impact will that have on them? Also, if spouses are equal partners, but neither has enough cash to buy the other out, will the business have to be sold?

Take positive steps to avoid these issues

The most effective action you can take is to create a prenuptial or postnuptial agreement that spells out how to distribute the business during divorce. This can protect both spouses, business partners, and employees by:

  • Declaring whether the business was established before the wedding and is not subject to division during divorce
  • Determining how the non-owner spouse will share in the business’s growth during the marriage
  • Stating how to value the business in case of divorce
  • Determining – if spouses are co-owners – whether one spouse will buy out the other’s share, or whether to sell the business or if both parties will continue to work together

Protections without a prenup

Even if a pre-or postnup doesn’t exist, owners can protect their business by keeping detailed records and separating their company and personal accounts. That includes accounting for all sources of business capital and whether they came from premarital or marital funding.

Owners must make sure they maintain a full accounting for all cash transactions. They should also pay themselves a fair salary to establish income and pay their spouse a reasonable wage based on their contribution to the company.

Minimize disruptions

Finally, if you decide the only option is to end the marriage, keep the impact on your business to a minimum by scheduling divorce-related matters on your calendars, such as emails and phone calls. Limit discussion about your personal life with partners and employees and reduce the burden on staff by collecting all documents needed for your divorce in a single request. An experienced family law attorney can help you sort through these issues to protect your business’s future success.

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