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Published On: Mon, Jan 23rd, 2017

Avoiding Company Divorce and Failure

Marriage is a union which both parties enter with a long term view of “happily ever after.” However, unlike fairy tales, a 2010 report by the National Marriage Project at the University of Virginia said that between forty to fifty percent of first marriages in the U.S. end in divorce.

When all is rosy, the issue of finance rarely comes up. It all changes quickly when a couple see divorce around the corner. Wives, for instance, who do not own a bank account, open one. Each party involved begins to look out for their respective best interests. It ceases to be “we” but “me.”

The issue of separate and marital property comes into play. Who gets what becomes the name of the game.

If you are involved in a divorce, considering how much labor put into building a company, the issue of how to protect your company during a divorce becomes essential.

The following can help you protect your company during a divorce:

PRENUPTIAL OR POSTNUPTIAL AGREEMENTS

The first thing expected of you as an entrepreneur who wishes to protect your company during a divorce is to have a prenuptial agreement in place, as it lists who has what before a marriage takes place.

A well documented prenuptial agreement, done with the help of your respective attorneys, goes a long way in protecting your business in court and can override Community Property and Equitable Distribution State Laws. The key factor being that it ought to be written down and not oral, as well as signed by both parties at a reasonable time before the wedding day.

If a prenuptial agreement was not made, as soon as possible after a wedding, a postnuptial agreement can be made. The drawback being that many states do not recognize it; and in a case where it is recognized, it is strongly challenged in courts. This should not stop you from having it as it beats having nothing at all to call on.

Ask your attorney our a prenuptial agree affects possible alimony payments (further reading: http://www.sterlinglawyers.com/wisconsin/spousal-support/calculator/)

PAY YOURSELF WELL

Any good business adviser would encourage you to reinvest back into your business. This will help your business grow as you consciously increase your business capital.

Femke Jenkins Photography

When divorce comes around the corner, this sound business advice tends to backfire instead of work in your favor. Simply because the income you reinvested back into the business can be claimed by your spouse to be a loss suffered. The clear fact being that it is money that could have been used for the household. That being the case, your spouse is expected to profit from the business.

SEPARATE YOUR SPOUSE FROM YOUR COMPANY

Just like your spouse is entitled to share in your business as a result of your reinvesting money you earned back into your company; working in the company also entitles your spouse to share in the business.

To avoid this, avoid employing your wife in the company you build. If on the other hand your spouse is already involved in the business, find a way of making your spouse leave the company.

(further reading: https://www.irs.gov/businesses/small-businesses-self-employed/husband-and-wife-business)

INVOLVE OTHERS

Another way to protect your company during a divorce is to get others involved in it. It is a well-known fact that one can not give what one does not have.

You can achieve this by selling a minority stake of your company shares to employees or angel investors. You could also have partners who would sign an agreement that shares can not be transferred by any of the partners without the consent of the other partners.

FORFEIT OTHER ASSETS

You could also protect your company during a divorce by forfeiting other assets you own with your spouse. This may include the house, joint account, among other things, so long as you retain complete ownership of the company.

PAY YOUR SPOUSE OFF

It is most likely that you do not want your spouse to be around your company in case of a divorce. That being the case, you can elect to pay your spouse off.

One of the ways to achieve this is to have an insurance for yourself. This will help you build up funds to be used should paying off your spouse arise.
Note that companies are rarely sold to satisfy a divorce claim since it will deprive the business owner money for future support payments.

Author: Lolita Di

Photo/Femke Jenkins Photography

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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