How to Divorce-Proof Your Family Business
When a married couple goes into business together, they are planning for their future together. Unfortunately, many couples fail to prepare for a future apart, so when divorce happens, it can threaten the family business. When most of the spouses’ assets and net worth are tied up in their company, it becomes difficult to untangle their finances and leave the business intact. However, there are steps you can take to protect yourself and your business, preemptively as well as after the marriage deteriorates.
Premarital and Postmarital Agreements
A premarital agreement is the single most effective option for protecting your company in the event of divorce. Without a prenup, it will be left up to the judge to decide how your business and other assets should be divided. Once only for the rich and famous, prenuptial agreements are now encouraged for any entrepreneur that wishes to preserve his business interests.
What happens when a couple starts a business together after they are already married? An existing prenup can always be modified as your financial situation changes. A married couple can also execute a post-marital agreement to sort out financial issues that arise after marriage.
Business Partnership Agreements
Every co-owner needs a solid business partnership agreement, even (and perhaps especially) when your business partner is your spouse. A good partnership agreement will define the roles of each partner in the business, as well as an exit strategy for either partner to leave the business. A buy-sell agreement sets out the options available to co-owners to buy or sell the other’s share of the company under certain circumstances, such as divorce.
Pay Yourself (and Your Spouse) a Fair Salary
Business owners often make sacrifices to grow their business, including underpaying themselves to keep capital within the company. When one or both spouses fail to draw a reasonable salary, it can complicate a divorce case. All your resources are invested into an asset that is not easily divided. Salary history can also demonstrate your value to the company. For example, if the husband draws a $200,000 a year salary, while the wife collects only $50,000 a year, the judge can use this information to evaluate a spouse’s need for support.
Divorcing Your Business Partner? Call a Virginia Divorce Attorney.
Unfortunately, by the time a business owner understands the need to divorce-proof his business, it may be too late to implement any of these actions. However, there are still measures you can take to protect yourself and your business during a divorce. If you suspect your marriage and livelihood may be vulnerable to divorce, reach out to an experienced family law attorney right away.
Whitbeck, Cisneros, McElroy PC is a full-service family law and estate planning firm in Leesburg, Virginia. We can assist with pre- and post- marital agreements, divorce proceedings, spousal support, and other family law issues. Our knowledgeable and dedicated attorneys are eager to fight for the best possible outcome in your case. Contact us today to schedule a consultation.