Can you protect your business in a divorce?

Not only does a divorce typically cut across numerous emotions throughout the process, but the parties will often have to explore several legal areas as well. Depending on the personal circumstances, finances and duration of the marriage, individuals might have to address concerns such as tax implications, property division and business valuation.

If the divorcing couple owns a business - either started together or simply developed together - each party will likely have very different ideas about how to proceed. If you brought the business into the marriage or you believe you hold a major stake in the future of the organization, it is crucial that you take the steps necessary to protect yourself and your business interests.

But, what can be done?

There are numerous preventative strategies that people can employ to protect their interests well before a divorce becomes a reality. First and foremost is the use of marital agreements. Whether you complete a prenuptial agreement before your marriage or you maintain a post-nuptial agreement over the course of your marriage, this document can help you ensure that separate property remains separate.

What is separate property?

This biggest issue many divorcing couples face is identifying marital property versus separate property. During a long marriage, memories can fade and lines can become blurred. In general, for property to be considered separate, there are a few questions that need to be examined.

  • Did you own the property prior to the marriage?
  • Was the property or asset given to only you as an inheritance?
  • Was the property or asset given to only you as a gift?

If you can answer "yes" to these questions, then the property can generally be considered separate.

What can stakeholders do?

While each state might have different rules and regulations, Inc.com suggeststwo specific strategies that business owners can employ to protect his or her interests.

"Partnership, shareholder and/or operating agreements should include various provisions that would protect the interests of the other owners if one of the owners gets divorced."

They suggest pre-planning through the use of documents:

  • Prenuptial agreements: Prior to marriage, the use of a business-specific prenup - in conjunction with a waiver of his or her future interest in the business - can clarify a position and resolve disputes even before they become disputes.
  • Operational documents: Provisions written into the bylaws of an organization can prohibit the transfer of shares without the approval of the other partners or shareholders. Additionally, this provision can give the partners the right to purchase the shares of one or both of the divorcing parties.

Forethought and careful planning can prevent a disruption of your business. If you own a business, it is wise to protect your own interests in the event of divorce. If you are a partner or shareholder, the use of contracts and operational documents can be key to provide stability and consumer/vendor confidence if divorce within your ranks becomes a reality.

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