Protecting Your Business During Divorce: Legal Strategies for Entrepreneurs

As an entrepreneur, you’ve invested enormous time, money, and emotion into building up your business.

Protecting it is a high priority, but that can be difficult in the face of divorce. Nobody wants to plan for their marriage to break up, but preparing for the worst is the best way to preserve your interests.

There are several proactive legal measures available to safeguard your business interests against the equitable distribution process. These include:

Prenuptial and Postnuptial Agreements

A prenuptial agreement is one of the most effective tools available for protecting a business. It allows both you and your spouse to agree in advance on how the business will be treated in the event of a divorce, ensuring it remains separate from marital assets. If a prenuptial agreement isn’t in place, a postnuptial agreement, signed after marriage, can serve the same purpose. These agreements can specify that the business, or its appreciation in value during the marriage, is not subject to division.

Setting the Business Up as Separate Property

Entrepreneurs should maintain clear boundaries between their personal and business finances, as doing so will help establish that the business is separate property. Never use marital funds for business purposes, and maintain meticulous financial records to help prove that the business isn’t a marital asset.

Creating a Trust 

Placing your business in a trust is another effective way to protect it. A trust removes the business from your personal ownership, which makes it much less likely to be included when it comes time for marital asset division. A properly structured trust can keep the business from being contested during divorce proceedings.

Implementing a Shareholder or Partnership Agreement

If your business has multiple owners, a shareholder or partnership agreement can include terms that restrict the transfer of ownership during a divorce. These agreements can ensure that the divorcing spouse can’t gain control over the company by selling or dividing shares.

Pay Yourself a Fair Salary

It may be tempting to keep reinvesting your profits back into the business, but by paying yourself a fair salary, you avoid the court deciding that business growth is marital property.

Include a Buy-Sell Agreement 

A buy-sell agreement can proactively address how ownership will be handled in case of divorce. It guarantees business continuity and protects other shareholders or partners from losing control of the entity.

Speaking with an experienced attorney will help you identify which strategy best minimizes the risk of losing your business if your marriage fails. For more information, contact us today to set up a time to meet.