Protecting the Family Business During a Divorce

Going through a divorce is never a fun process, and it’s even worse if you and your ex cannot agree on anything. Trying to determine who gets control of what and who receives which assets can be a nightmare, especially if you both want control of the same things.

One area that gets a bit hectic during a divorce is when the couple owns a family business together. Obviously, you both want the business to continue doing well, so how do you protect the family business during a divorce?

 Determine the Premarital Ownership

If you want to keep the family business after your divorce, one way to do so is to prove the premarital ownership of the business. For example, if you owned the business before you were married, you may be entitled to keeping the business after your divorce.

There are exceptions to this, though, and every case will be viewed differently. While you may have owned the business before the divorce, you and your ex could end up having to split the business if your ex had anything to do with the business once you were married. For example, if your ex held responsibilities at the business, or even if you deposited profits from the business into a joint checking account, your ex could claim potential ownership of the business. If you owned the business and your ex had absolutely nothing to do with it once you were married, then your chances of keeping the business are much greater.

 Consider a Prenuptial Agreement

Most people think that prenuptial agreements are only used so the wealthy can protect their assets, but this is a common misconception. Prenuptial agreements can be used to help you keep any of your premarital assets after a divorce, including a business.

If you owned a business before you were to get married, you could use a prenuptial agreement to ensure that you will continue to be the sole owner of the business if your marriage was to ever dissolve. This is a legal and binding contract that will ensure you protect your family business. Even if your ex were to work at the business after you were married, the prenuptial would protect you during the divorce. While the topic of prenups can be uncomfortable, it may be something to consider.

 Have a Salary

Another way to protect your business is to pay yourself a regular salary from the business’s profits. When you do this, you are lowering your net income, and this can be a saving grace. If you don’t pay yourself a salary and instead put the money back into the business, your ex can come after you for part of the business during a divorce because you have no net worth. However, if you pay yourself a salary, then you will have a net worth, and that—in most cases—would be all your ex can use against you during the divorce proceedings.

Protecting a business during a divorce can be tricky, but it is possible. If you want to be truly sure that your family business isn’t affected by a divorce, it’s best to keep your spouse out of your business entirely. If he or she has absolutely nothing to do with the business before or during your marriage, then he or she cannot claim responsibility for it when the marriage is over.

 

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