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How can I protect my business assets during my divorce?

If you are facing a divorce and own your own business, there are special considerations that you must take into account while dividing up your marital property. Even if you started your business prior to your marriage, you probably won’t be able to just walk away with all of your business assets.

Contributions from marital resources made to your business during your marriage intertwine your personal and business assets. This makes both subject to division during a subsequent divorce. Just like with your home, you need to deal with business valuation and taxation aspects during the property division process.

Some considerations

If you did not pay yourself a competitive salary but reinvested your earnings back into the business, your spouse may be able to claim a substantial portion of the business. If your spouse contributed to your business in some way — sweat equity, business ideas, part-time help —, this can also entitle him or her to a portion of your business interests.

If you have a prenuptial or postnuptial agreement, you may have already determined what will (or should) happen in the event of a divorce. Even during the time you are contemplating a divorce, you may wish to hammer out a postnup to help dispense with business asset issues.

What are some of my options?

There are always options. Here is a few of the most common:

  • Buyout: You may wish to buy out your spouse with other non-business assets you retained during the divorce. If there is not enough cash to purchase your spouse’s interest, you may be able to draft a property settlement note, which allows you to pay it off over time with interest.
  • Co-ownership: If you and your spouse have been in business together and you still have an amicable relationship, continuing your business relationship may be preferable to other options. However, be sure to rewrite your business documents to clarify your separate roles and to establish buy-sell agreements for the future.
  • Sell out: Sell the business, split the profits and go your separate ways. While this may not be the most appealing choice, it sometimes may be your only option.

There are many complexities to divorce and property division, especially when business interests are involved. Don’t let a divorce destroy what you have worked so hard to build. Seek professional help at every step of the process.

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