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How to Divorce-Proof Your Business

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Maintaining Your Business During Divorce

Whether it is due to the high unemployment rates that hit several years ago or the entrepreneurial itch, Baby Boomers are now, instead of retiring,  married people who are starting their own businesses.

If you own a business, it is probably your largest single financial asset. If you divorce, your ex may be entitled to half of your business. If you started the business during the marriage, it could be considered a marital property that is fair game in a divorce.

Here are some ways you can divorce-proof your business:

Prenuptial agreement – One of the best ways to protect your business from divorce is to start before the marriage takes place. In executing a prenuptial agreement, you and your soon-to-be-spouse should be represented by separate attorneys. Then you both decide what property should be treated as separate, what property will qualify as marital property and how the marital property will be divided in case of divorce.

Buy-sell agreement – Married couples who jointly own a business can execute a buy-sell agreement that outlines what happens to the business should a divorce or death of one spouse occur. A well-crafted buy-sell agreement will determine how ownership interests are to be transferred, a way to determine the price for the sale or ownership transfer and a way to pay for the purchase of an ex’s ownership interests (i.e., life insurance, cash, loan, etc.).

Trust – There are several trust instruments available to shield a company from the potential adverse effects of a divorce. If you wish to protect your business interests from a potential divorce and pass those along to your children, you can have your business established right from the beginning in an irrevocable trust that shields your business assets from your divorce as well as your children’s potential future divorce. Since the business assets are placed in a trust governed by a trustee, they are no longer considered yours — and therefore protected from an ex-spouse or any other creditor.

If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today and ask about our LIFT™ (legal, insurance, financial and tax) Foundation Audit.

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