Entrepreneurs should know how divorce can affect their business assets. The fact that half of your business may be entitled to your ex-spouse, including invested money and an unknown number of hours spent on developing and perfecting your business. Of course, there are companies than manage to be successful, even though they are run by divorced couples, but there are great chances that this will not be your case. Here we give you a few valuable pieces of advice on how to prevent your soon-to-be-ex from acquiring a significant part of your business assets and how to alleviate the already caused damage, in case the process has already began.
“Prevention is better than cure”
Every relationship seems unbelievably dreamy and flawless in the beginning, so people go on thinking that nothing will ever change. However, one should think about the chance that their movie-like romance will not last “until death do us part”. This is what you, as an entrepreneur, should do to protect your business.
These agreements are signed by both parties during or before marriage and represent a contract agreed upon both. They need to be signed in front of (at least) two witnesses or a judge (without any coercion), and should include all assets that spouses possess. If you have not signed it before, you can ask your partner to sign a postnuptial agreement. To protect your business from spouse’s claims, the prenuptial/postnuptial agreement is possibly the least expensive and easiest way to do it.
Marital vs separate property
These two types of properties should never be mixed. If the company was launched and operated before a couple got married, your spouse cannot claim the company’s assets, because will be listed as separate property. However, in some case there might be an exemption. For instance, everything that way made before the marriage is counted as separate property, but every increase in assets during the marriage will be listed as marital property. The divisions according to this rule defer between Community Property and Equitable Division states. Equitable Division states consider many different factors when deciding on asset allocation between the partners. According to Community Property states, each spouse gets half of all marital assets. That is how California Divorce Papers are executed, and if you are filing for divorce there, as well as in Nevada, Texas, New Mexico, or Idaho, 50% of your company’s business assets will go to your ex-partner.
Buy–sell agreements and partnerships
These agreements prohibit transfer of company shares without a permission of other shareholders. They are signed for spouses to make sure that the other party will not sell his/her share after the divorce is finalized.
Paying a competitive salary to yourself
Your ex-partner will be entitled to a larger share of your company if you have invested all of its earnings back into the business, because your home did not benefit from your work.
Fixing the damage
In case you did not protect the shares of your business before or during your marriage, and your ex-partner receives his or her part of shares, you can still continue to run your company as you did before and pay off some dues.
If you sign a Property Settlement Note, you will be allowed to pay out your spouse’s share on the long term, with interest. You may offer you spouse to compensate your business’ shares with other types of assets such as: shares in other companies, cash, retirement funds, real estate or vehicle.
When there is no other solution, then the last option is to sell your business, divide the money, and start a new business in the same industry niche. In the end, the best way of protecting your business is the prenuptial agreement. You will save what is yours, ensure a lot more fruitful and quality life in the following years.