Are you about going through a divorce proceeding? If YES, here are 9 easy but fail-proof ways to protect your business from a divorce law suit. We all hope for ‘happily ever after’ when getting married but unfortunately, not everyone gets to enjoy this. A lot of marriages end up in divorce and divorce rates have continued to increase over the years. Current estimations put the divorce rates of recent marriages to be at an alarming 50%.
Our businesses are very important to us considering how much time and energy we put into making it work. However, in the eyes of the law, your spouse is entitled to about 50% of everything you own if you decide to separate and this includes both your personal and business assets.
This could mean two things for your business, your spouse which you no longer want, becomes your business partner with just about the same shares in your business as you or you would have to sell off the business to settle your spouse or better still, divide the business so that each party can have control over their own portion of the business.
None of these look or sound appealing to anyone. The reason why you are seeking a divorce from your spouse in the first place is because you no longer want to have anything to do with them except maybe, care for your children, if you have any. A situation whereby you are now unwillingly joined in business sounds like a defeat of purpose.
Also, having to share your business assets with your spouse may destabilize your business and even lead to bankruptcy. Therefore, you must look for ways to protect your business assets from divorce before, during and after the marriage.
Table of Content
- How to Protect your Business from a Divorce Law Suit
How to Protect your Business from a Divorce Law Suit
To protect your business from a divorce law suit, you have to understand the concepts of separate and marital assets. Separate assets include any property acquired by either of the parties before the marriage, any inherited property, gifts received from third parties and any compensation as a result of personal injuries sustained. Marital property on the other hand, includes any property acquired by either spouse during the marriage.
This would include all income and assets, pension and retirement plans, stocks and other equity, life insurance, bank accounts, houses, cars, licenses and real estate. Any increase in the value of any of these assets is also treated as marital property. Even though the terms are clear and marital property can be easily identified and differentiated from individual properties, this rarely the case because more often than not, they get mixed up.
For instance, your personal inheritance is your separate property but when you pay the proceeds into a joint account or you change the name to include your spouse’s name, it becomes marital property. Protecting your business from divorce and lawsuits should start even before you get married.
I get that you are in love and cannot even imagine living without your spouse but, so were the million and one couples who drag themselves to divorce courts for settlements annually. So, here are a few steps to take in order to ensure that your business assets are saved from divorce law suits-:
9 Fail-Proof Ways to Protect your Business from a Divorce Law Suit
1. Sign a Pre-nuptial Agreement
This is usually called a pre-nup and it spells out the rights, expectations and entitlements of both parties upon divorce. You can use your pre-nup agreement to knock out any equitable distribution state laws and keep your business assets safe in case of a divorce.
However, pre-nups can be very technical and a slight error may render it null and void. For instance, if your spouse can prove that he/she was coerced or forcefully made to sign, that’s the pre-nup flushed down the toilets. You should get your attorney to give you solid legal advice on how to go about executing a pre-nuptial agreement that would hold water in any circumstances.
2. Sign a Post-nuptial Agreement
Did you forget to sign a pre-nup? Or probably, you didn’t even know that it was necessary at the time. Well, all hope is not lost because you can still sign a post-nuptial agreement with your spouse to protect your business. A post-nuptial can be used to protect your business and it can be signed at any time during the marriage but at least 7 years before the divorce.
3. Make your business a separate legal entity
Register your business as a Limited Liability Company with an identity of its own and ensure that business assets are bought in the name of the business. You should also consider using buy-sell agreement strategies to protect your business from divorce settlements.
4. Restrict spousal involvement in business
When you employ your spouse, take business advice from them, make them a partner or use their ideas or suggestions; you automatically give them an entitlement in your business when you decide to separate.
5. Keep finances separate
Ensure that the family’s finances are strictly separated from those belonging to the business. Avoid borrowing money from the family account to fund business expenses and if you have to borrow money from your business for the family, ensure that it is from your own personal account in the business. The bottom line is to keep both funds separate as much as possible.
6. Remunerate yourself generously
It is also important that you pay yourself a good salary. If you keep pouring business profits back into the business, your spouse’s attorney may use it against you and claim that you starved the family of your earnings and therefore your spouse would be entitled to more money from your business assets.
7. Offer to pay with other assets
Instead of your business, you can offer to sacrifice some of your other assets or even offer to pay in cash.
8. Opt for Installments
Another option is to offer to settle your spouse in cash installments. This could be monthly or annual payments depending on what you can afford.
9. Life Insurance
Lastly, you can use the cash portion of your life insurance policy to protect your business from divorce or any other law suits.