Marriage is a partnership, and the same is true of many businesses. The stakes are similar – you are in a partnership “for better or for worse.” Most business owners understand and appreciate the need to protect themselves in business through the use of contracts and partnership agreements, but the same cannot be said for the majority of people entering into a marriage.
If you own your own business or are a participant in a family business, you may be putting those assets at risk in the event of a divorce if you do not have a contract with your spouse that details what will happen to that business if you and your spouse divorce.
You want to prepare yourself in case “for worse” arrives. If you own a business, your spouse likely is a participant. The spouse can be active in the business or an essential supporter. In either case, your divorce can be much, much more complicated.
Protect yourself with a contract
A prenuptial or postnuptial agreement establishes rules for dividing business and other assets at the time of a divorce. Through the use of a postnuptial agreement or prenuptial agreement the divorce process can be much smoother. The agreement must be clear to both parties and not open to interpretation. You can also use a postnuptial or prenuptial agreement to protect these same assets in the event of death or incapacity. So long as the agreement fair and reasonable at the time it was entered into and at the time of divorce, it can be used to accomplish almost any goal you seek to achieve.
The agreement can state your business is your own property and will not be part of any separation. It can also establish that one spouse can buy out the other’s interest in a business. It can limit your spouse’s share of how much the business’s value increased following your marriage and what income may be used from the business for the purposes of establishing a support order.
Protect yourself without a contract
You can establish yourself as the sole owner of the business. Document that ownership of the business is not subject to a transfer during a divorce.
Keep records detailing the use of premarital or marital money as a source of capital. Keep separate records for your business and personal expenses to avoid confusion and document all cash transactions.
If your spouse works at the business, pay him or her a fair rate for all services. If you fail to do so, your husband or wife may be due compensation for making financial sacrifices on behalf of the company.
Protect yourself by thinking ahead
One key to success in business is preparing for the future. You have to follow the latest trends, products and technology. You have to be ready for any eventuality.
Take the same approach to your business and your marriage. You and your spouse can reach an agreement that is acceptable to both of you in case of a divorce.