If you are a business owner and you or your spouse is thinking about ending the marriage, a divorce can have a significant impact on your business. If you are worried about your soon-to-be-ex-spouse becoming your business partner or the liquidation of your business will result in split proceeds, you need to learn how to protect yourself before filing for divorce.
First, you must determine whether your business is considered separate or marital property. Separate property includes assets—including businesses and professional practices—which was owned before marriage, an inheritance from a family member, and gifts received from a third party. By contrast, marital property is considered any asset obtained during the course of a marriage.
So if your business was created during the marriage, it is a marital asset. If you already started the business prior to getting married, then the business is deemed a separate asset.
However, separate property can lose that status if it is commingled or mixed with marital property. For example, if you invested any marital funds to support your business ventures or your spouse contributed to your business, your business is now marital property and subject to equitable distribution.
There are several ways to protect your business in the event of a divorce, such as the following:
- Create a prenuptial or postnuptial agreement – A prenup or postnup enables you to designate any business which you have already started to remain as separate property in the event of a divorce. You need to disclose your wishes to your spouse or fiancé and a written agreement must be signed with a witness or notary present.
- Ensure separate property remain separate – Do not mix business and personal expenses to avoid turning your separate property into marital property.
- Create a buy-sell agreement – While a buy-sell agreement protects your business if it is sold or when a partner passes away, it can also protect you if you are going through a divorce.
- Ensure your spouse is not an employee for your company or helped run it – If your spouse was employed by your company or contributed to running the business in any respect, then he/she may be entitled to a significant percentage of your business. The more involved your spouse was in your business operations, the higher that percentage becomes. If you have partners in the company, then your spouse would be given a percentage of your share.
- Pay yourself a competitive salary – If you reinvest any profit made back into the business, your spouse can claim that he/she is entitled to a larger percentage of your company or more money because all of the profit went to the business, rather than the household.
If you wish to protect your business, or if your spouse is entitled to a percentage of the company or shares, it is imperative to seek experienced legal representation from an experienced high-asset divorce attorneys. At The Franklin Law Firm, our Yonkers family law attorneys evaluate your business ownership rights and figure out how your business assets are distributed according to state law. Our goal is to help you obtain the best results possible.
For more information about high-asset divorce, contact us and schedule a consultation today.