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Protecting a family business in divorce

With the majority of businesses in the U.S. owned by families, it’s important for business owners to have a plan to protect those businesses in case of divorce.

Prenuptial Agreements

One way in which business owners can ensure assets (including the business) are split equitably is to have prenuptial agreement. A prenuptial agreement is an agreement entered into by both spouses prior to the marriage. Commonly known as a “prenup,” this agreement sets out the division of assets, including a business, in the event of divorce.

Having a prenup in place can ensure that the court won’t require the business to either be sold or force the spouses to work together in the business if they can’t agree upon an equitable division of assets. A prenup can even value the business (or the price of its shares), often one of the most contentious issues in property division during divorce. Because prenups can override community property laws it can be a powerful tool to have in case of divorce.

Division of Assets During Divorce

If a prenup is not in place at the time of divorce, there are a few things to keep in mind when considering the business post-divorce. First, the soon-to-be-ex-spouses should be reasonable and willing to compromise. When the couple is involved in discussions about the business, they should take care to leave personal issues out of the conversation and make the talk only about the business. A reasonable attitude can provide both ex-spouses with a better financial outlook post-divorce. Additionally, a business appraiser not connected to either party or to the business should be hired to determine the value of the business. Knowing the true value of the business is integral to dividing marital property fairly.

If the spouses will continue to work together in the business, they should make sure any new roles of the ex-spouses are clear, particularly if there has been a change in leadership or a change in the an ex-spouse’s position because of the divorce.

Finally, both spouses should put off making any big changes to the business until after the divorce proceedings are complete, especially if the changes could possibly be viewed as an attempt to undermine or cheat the other spouse. Actions the court may view as underhanded may end up negatively affecting the spouse in court.

If you own a business and are about to get married or divorced, speak to a family law attorney familiar with business ownership issues among spouses to understand your options.