So, you are a small business owner and are wondering how to ensure your business thrives and never falls. You have invested in security measures, vetted out your executive team and all your staff, and purchased hefty insurance coverage. But have you divorce-proofed your business? One of the reasons that small businesses fail today is divorce.
Without proper planning and strategy, your business may be one of the many unfortunate ones that have fallen due to divorce. Many states today consider one partner’s business to be the marital property of assets. This means that upon divorce, this asset will have to be split between the couple. As this could disorient your business, you may need to divorce-proof it from the onset.
How to Divorce-Proof Your Business
Here are six ways to divorce-proof your business:
1. Sign a Prenup
Signing a prenuptial agreement is probably the most common and effective way to divorce-proof your business. This is because a prenup is a detailed contract detailing the course you will choose to take upon a divorce. This means you will not have to split your business or have your partner as a business partner if that is not what you want.
To settle a prenup, you may need to get your attorney separate from your partner’s own attorney. They can help you draft an appropriate prenup that may be approved in court.
2. Sacrifice Other Assets
If you had not considered divorce-proofing your business before you or your spouse filed the divorce, then sacrificing common assets, such as the car or even the house, can be a better option. The catch, however, is in ensuring that the assets you are giving up are worth the amount of the share of the business your spouse should have gotten from the business. With your divorce lawyer’s guidance, you may be able to secure your business by doing that.
3. Keep Your Spouse out of Your Business
A common mistake entrepreneurs make is involving their spouses in their business. Whether in the decision-making processes or financial aspects, it is not wise to include your spouse, as this gives the judge ground to rule in your spouse’s favor.
4. Contact Professionals
Your business deserves all the precautions you can afford. This includes the help of different experts, including financial advisors and business lawyers, who will consider all the loopholes within your business and avail you with solutions to protect your business in the event of a divorce. If you had not put such measures in place before, be sure to inform your divorce lawyer so they may chart a better way forward.
5. Set up a DAPT
Perhaps the idea of a prenup does not meet your fancy, and you are looking for a more agreeable solution. A Domestic Asset Protection Trust is often a great solution for securing businesses from the effects of a divorce. It does this by transferring the business ownership into a trust, which will be the business’s legal owner.
This removes the business from the marital property category. However, if you consider using this option, it is best to seek legal advice at each step of the way to ensure your business safety since you may be dealing with several entities.
6. Create a Buy-Sell Agreement
A buy-sell agreement allows your spouse to sell you their share of the business. When using this option, it is best to settle for payment methods that you are comfortable with.
A Prenup Is Never Enough
Although most people think that a prenup is all the protection they need before a divorce, Laurence J. Brock, a divorce attorney in Rancho Cucamonga, believes otherwise. “Many couples believe that the agreement made before marriage protects themselves and their children in the event there is a divorce, but this isn’t guaranteed. According to California law, either party can amend or revoke the agreement after you are married.” In this case, hiring a divorce attorney to follow up on the prenup agreement is the best way forward.