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How do I protect my business in my divorce?

The divorce of a business owner can affect multiple parties: the owner, his or her spouse, his or her business partners and the business itself. Proper planning by a business owner going through divorce can ensure that the divorce affects the ownership structure according to the owner’s wishes.

This likely means that the owner retains his or her share of the company, but not necessarily. Perhaps the owner is willing to trade his or her piece of the business to his or her spouse, in exchange for some other concession.

Many business owners who are getting married protect their ownership through a prenuptial agreement. This is a contract that each spouse-to-be enters into, in which they agree what property will be considered martial property and what will be separate property. Separate property is not subject to division in divorce, so if your spouse agrees that your business will be separate property, you will be able to keep it if you ever get divorced.

Already married? It’s not too late. Post-nuptial agreements work the same way as prenups, except the parties to the agreement are already married to each other.

Meanwhile, if you have a business partner going through divorce, you could wind up with the partner’s ex-spouse as a part-owner. If this is something you would like to avoid, setting up your partnership agreement carefully is important. For example, you can include a provision prohibiting transfer of shares in the business without the approval of the other partners, or the opportunity for the partners to buy those shares.

If you have failed to take these protective steps, it is still possible to argue that your business is separate property. The best way to do this is to limit your spouse’s involvement in the business as much as possible. The more he or she contributes to the business, the more likely he or she will be able to convince the court that the business is marital property.

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