A divorce can threaten the stability of a business if both spouses share ownership or if the enterprise becomes part of the asset division. Business owners must take strategic steps to protect their companies during a divorce settlement.
Draft a prenuptial or postnuptial agreement
A prenuptial or postnuptial agreement can help business owners set clear expectations for how the business will be handled in case of a divorce. These agreements can outline whether the company will remain entirely separate from marital assets. If a prenup or postnup exists, it often becomes easier to determine ownership and avoid lengthy disputes.
Keep business finances separate
Keeping personal and business finances separate is crucial, especially in a high-asset divorce. Mixing personal expenses with company finances can make it more difficult to prove that the business should not be considered a marital asset. Business owners should ensure that all business transactions occur through dedicated business accounts. Accurate record-keeping can provide solid evidence that the business belongs solely to one party.
Pay a fair salary to the spouse
If a spouse contributes to the business, the owner should pay a fair salary for their work. This strategy helps avoid future claims of entitlement to the company due to unpaid contributions. Compensation can prevent misunderstandings about the spouse’s role and their financial stake in the business.
Consider a buy-sell agreement
A buy-sell agreement can protect a business by restricting the transfer of shares in case of a divorce. It allows other business partners or stakeholders to buy the divorcing spouse’s shares. This helps maintain the integrity of the business and keeps ownership within the intended circle.
Create a trust
Placing business assets in a trust can offer another layer of protection. By transferring the business into a trust, it may become inaccessible during the division of assets, ensuring that the company stays intact regardless of personal circumstances.
By taking proactive measures, business owners can safeguard their enterprises against the potential disruptions of divorce. Protecting a business requires careful planning and foresight, but it ensures stability and security for the future.