Don’t lose everything you’ve built!
Starting your own business is hard work. Building it into a successful venture is even harder. Watching it get torn apart in a divorce? That’s the worst case scenario most business owners fear.
Divorce can end your business faster than a market crash.
With 41% of people employed in business-related industries ending up divorced, you can’t afford to ignore protecting your business. Think of it not just as smart planning but as your livelihood at stake.
What you’ll learn:
- Why you need to protect your business now, not later.
- Legal strategies to keep your business out of divorce.
- Legal documents to protect your business.
- Business structures that provide the most protection.
Why You Need to Protect Your Business Now
Think your business is safe?
Think again.
In most states, any business you start or grow during marriage is marital property. Your spouse is entitled to 50% of its value in a divorce.
And let’s say you started before marriage…
If your business grew during marriage with marital funds or your spouse contributed, he or she can still claim a piece of it. Business valuations in divorce cases can cost over $50,000 for complex situations alone, before any asset division happens.
The good news is you can protect yourself before problems arise.
Legal Strategies to Protect Your Business from Divorce
Want to know the best way to protect your business from divorce?
It’s to plan and take steps before you need it. Don’t wait until you’re in a divorce to plan to protect your business. By then emotions are running high and lawyers are involved. It’s too late for prevention.
Separate Business & Personal Finances
This seems like a no-brainer, but you would be shocked how many business owners make this mistake.
Personal expenses on business credit card? Stop it now. Writing personal checks from your business account? Cut that out immediately.
Each time you use personal money for business expenses or vice versa you are giving your spouse more ammo to claim your business is marital property. Commingled funds are a red flag for the court that your business is not separate from the marriage.
Pay Yourself a Fair Salary
This is one mistake I see more times than I care to admit…
Business owners who put every extra dime back into the business instead of taking a fair salary. Yes, it helps your business grow, but it also strengthens your spouse’s case.
If you’re not taking income from your business, the court will presume all business value is part of the marriage. So pay yourself what you would any other CEO.
Document Everything
How will you prove your business is separate property? Documentation.
You need to keep detailed records of:
- When the business was founded
- Initial investments and their sources
- Financial contributions from both spouses
- Time and effort put into the business by each spouse
- When the business began to grow
Without this evidence you will be fighting an uphill battle.
Legal Documents to Protect Your Business
This is where most business owners drop the ball…
They start thinking about how to protect their business after divorce papers are filed. Smart business owners get these documents in place while their marriage is strong.
Prenuptial & Postnuptial Agreements
Prenups aren’t just for the 1%. A properly worded prenuptial agreement can spell out your business as separate property, off limits from division in divorce. Already married? You can accomplish the same thing with a postnuptial agreement.
The catch here is — these agreements must be fair to both sides and have full financial disclosure. You want to consult with a divorce lawyer in Fayetteville who is well-versed in business protection when exploring this strategy. Otherwise you may end up with a void agreement or unfair provision that blows up in your face.
Buy-Sell Agreements
Business partners? Buy-sell agreements are your friend.
A buy-sell agreement spells out what happens to business ownership if one partner gets divorced. It can protect against your ex-spouse becoming an unwanted business partner and give you the right to buy out any claim they might have.
Asset Protection Trusts
You know those mega wealthy docs who put all their assets in a trust?
You can do the same for your business. An asset protection trust will prevent your business assets from being reached by creditors, lawsuits, and divorce. Once assets are properly in the trust, they are typically off limits for personal claims.
Business Structure for Maximum Protection
Your business structure is more important than you think.
Sole proprietorships offer no protection at all. Your business assets are personal property and subject to divorce division.
Limited liability companies and corporations provide more protection because they are separate legal entities. The business itself can’t be claimed by your spouse, just your salary or dividends.
But don’t rest on this laurel too long…
The court can still consider your ownership interest as marital property to divide.
Multiple Business Entities
Some shrewd business owners create multiple business entities for different parts of their business. This makes the business much harder and more expensive for your spouse to divide.
Professional Guidance Makes the Difference
DIY business protection is a nice thought but rarely works when you need it. Family courts see through basic protection attempts and your DIY plan likely backfires.
Get professionals who understand both business law and family law. Don’t wait for a divorce to happen.
Moving Forward
You built your business from the ground up. Years of hard work, sleepless nights, and financial sacrifice went into building what you have today. Don’t let a divorce wipe it out.
Smart business owners plan ahead. They separate personal and business finances, document everything, and put legal protections in place while their marriage is solid. They understand protecting business isn’t about expecting a divorce. It’s about being prepared for any eventuality.
Remember the average divorce cost is $7,000 to $15,000 but business protection costs a fraction of that upfront.
Wrapping It All Together
Protecting your business from divorce is not paranoia. It’s being smart.
Successful business owners have a multi-layered protection plan in place that includes proper business structure, legal documentation, and clear financial boundaries.
The plans above work best when in place before problems arise. Don’t wait until divorce papers are filed to start thinking about business protection.
