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How can you protect your business in the event of a divorce?

On Behalf of | Feb 5, 2024 | Divorce

Protecting a business in the event of a divorce, especially in a high-asset situation, requires careful planning and consideration. One wrong move could have significant financial implications. If you are a business owner, there are several things you can do to preserve the business you’ve built in case your marriage frays.

The following are some general strategies that individuals may consider when seeking to protect their business in the event of divorce. However, it is worth noting upfront that because every situation is unique, seeking personalized guidance proactively is generally wise.

Get a fair valuation

Engaging the services of a neutral, court-appointed appraiser or hiring a professional business valuator can help determine the fair market value of the business. This valuation is crucial for the division of assets during divorce proceedings. It provides an objective assessment of the business’s worth, ensuring that both parties are treated fairly.

Consider a prenuptial or postnuptial agreement

A prenuptial agreement (signed before marriage) or a postnuptial agreement (signed after marriage) can outline how the business will be handled in the event of a divorce. These agreements can specify the business’s ownership structure, its valuation, and the steps to be taken in case of a divorce. While it may not be the most romantic conversation, having these legal documents in place can offer protection and clarity.

Keep personal and business finances separate

Maintain a clear separation between your personal and business finances. This includes having separate bank accounts, avoiding using business funds for personal expenses, and keeping meticulous financial records. This separation can help demonstrate that the business is truly a distinct entity and not just an extension of marital assets.

Protect intellectual property and trade secrets

Safeguard any intellectual property or trade secrets associated with the business. This may involve implementing confidentiality agreements with employees and taking measures to secure proprietary information. By protecting these assets, you can mitigate the risk of their inclusion in the divorce settlement.

Pay yourself a competitive salary

Ensure that you receive a reasonable salary from the business, as this can help establish the distinction between personal income and business assets. If you are undercompensated, it might be argued that the business is supporting your personal lifestyle, making it more susceptible to division in a divorce.

It’s crucial to seek advice tailored to your specific circumstances, and this may involve consulting with legal, financial and business professionals to develop a comprehensive strategy for protecting your business in the event of a divorce.