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How to protect a company in a divorce

How to protect a company in a divorce

There are many intricate details to work out during a divorce. Few are as complicated as determining ownership of a business founded by one of the spouses.

The first thing attorneys look at is whether the business is joint or separate property in a divorce. If one spouse started the business when he or she was still single, then it would most likely be separate. However, if the entrepreneurial spouse co-mingled joint assets with the business, such as signing a lease in both spouses’ names, then it may instead be joint property. To make this process simpler, there are various proactive steps business owners can take.

Make a prenuptial agreement

When a person starts a business before the marriage, he or she can claim sole ownership of the business within the prenup. However, there are certain conditions to this. A prenup must always be in writing. It must also be conscionable. This means one spouse who makes millions of dollars likely cannot claim that the spouse will receive nothing upon a divorce. If business brings in millions annually, then the owning spouse will likely have to give something to the other spouse. Conversely, if it is a small business that brings the spouse a modest income, then it may not have to go through division.

Lock the spouse out of the business

When an entrepreneur is truly worried about dividing a business, it may be best to remain proactive and shut the other person out of its operations. If the owner’s spouse played even a small role in the company, then the court may see it fitting to bestow upon him or her more in compensation. Even if the other spouse only contributed ideas to how the business could operate, the assets could be in danger.

Buy out the spouse

In the event one spouse does not want to give up any portion of the business to a former spouse, then he or she should consider giving up something else. Surrendering the house or a portion of retirement funds may be enough to assuage a former spouse gunning for the company.