How to Protect Your Small Business During a Divorce

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Love sprouts from a spark of romance. Most people hope to see it blossom into an everlasting rose, but sometimes it does not, leading couples to a divorce. This can be devastating, especially for those with kids and assets you care about, such as your small business.

getting a divorce

Hopefully, your spouse signed a prenuptial agreement, but that is not always the case. The following are a few tips that may help protect your business assets if you know a divorce is impending.

Limit Involvement

One step to take is to limit your spouse’s involvement in the business. It is best to start this early, but that doesn’t mean you can’t start later. It is normal to let your spouse get involved because you are partners, in a sense, but those who want to be safe should limit this involvement.

The reason you are doing this is because a court will grant partial ownership of your business to your spouse if he or she helped in a certain capacity. This partial ownership is something to worry about, so make sure your business stays safe, even after the divorce.

Get Paid

Another important thing to consider is making sure your business pays you a regular salary. Furthermore, you also want to make sure you invest money into your home and not so much in your business. As a business owner, you could be tempted to put all the money you can into your business, but you need to resist that urge as much as possible.

You want to take these steps so your spouse does not claim he or she is entitled to a fair share of the income your business has made during the duration of your marriage. A judge may see interest in the claim and could grant your spouse a share of the business.

Create a Buy-Sell Agreement

The next step you might want to take is to get a lawyer to help you create a buy-sell agreement. These are relatively common but should be prepared by an experienced lawyer who understands the value of communication. The Law Offices of Scott D. Rogoff, P.C. points out that it is vital that the lawyers contracted help navigate this delicate process to assure “clients that they will have direct contact with an attorney, open lines of communication, and prompt responses to inquiries.”

This agreement ensures that no shareholder or business partner can sell his or her part of the business without giving the company an opportunity to buy those shares. It is an effective way to protect your business from falling apart during or after a divorce. Your partners or shareholders can buy the shares you would have otherwise offered to your spouse.

Create a buy-sell agreement with your business partner or shareholders. A buy-sell agreement states that no one can sell or trade shares in a company without offering the partners or shareholders a chance to buy the shares first. By creating this agreement, your partner or shareholders can buy shares you might have to otherwise give to your spouse.

Consider the Postnuptial

It may be a good idea to consider a postnuptial agreement, which is normally signed before the divorce is considered official. This agreement simply states that you and your spouse have come to an agreement regarding who owns what. The document helps ensure that your business or assets are divided.

Hopefully, you can get your spouse to agree to giving you full rights to your business. You may have to make sacrifices, but this is your business after all, and you should do your best to keep it in good hands. Again, this is something a lawyer can help you get right, so do not forget to talk to one. You need to make sure that this agreement and any other is signed in front of a witness.

Do not be afraid to talk to a lawyer about some of these points while you are getting a divorce. Try to stick with a lawyer who has experience with divorce cases, which may provide you with ideal assistance.

Ryan Yarbrough is a small business consultant, speaker, and the manager at Davis Financial Services, a small business consulting firm.

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