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How to protect your business from the effects of a divorce

Your family is not the only thing likely to suffer from the effects of a separation from your spouse. Sometimes, it is necessary to divorce-proof your business well beforehand because that business that has taken you several long years and efforts to build can come crumbling down if you or your spouse decides to file for a divorce.
Divorce is a very common occurrence. In fact, an estimated 45%-50% of first marriages in the United States end up in divorce, and the numbers are higher for people getting married for the second or third time.

To prevent your business from crumbling upon separation from your partner, there are a few smart steps you need to take:

1. Separate your business accounts from your personal accounts

You have to keep separate accounts for your business and your family. Orange County Family Law attorneys always advise clients to avoid borrowing money from the family account to finance business expenses and vice versa. This would help to ensure that the business remains a separate legal entity at all times.

2. Reward yourself handsomely

You must also make sure that you pay yourself a good percentage of your business earns as salary. If you fail to do so, your ex may be able to prove that you starved the family of cash in order to finance the business and this would make your ex entitled to a sizable amount of the company’s assets. But if you can prove that you earned good salary from the business you may be able to prevent this from happening.

3. Don’t employ your spouse

If your spouse is able to prove that they have been involved in running the business or they worked for your company in any capacity, they are legally entitled to some part of the company’s assets. The more involved your ex was in your business, the stronger the case they would be able to build against you and the more entitlements they would be able to claim. To prevent this, it’s better not to have your spouse work for you at all.

4. Sign a pre-nuptial agreement

Don’t wait until the relationship becomes rocky before you start doing something about protecting your business. Take proactive steps to protect your business from a future breakup by making sure you and your ex sign a prenup before the wedding such that upon divorce, you alone would be entitled to your business and its assets.

If you are already married and you didn’t sign a prenup before the marriage, you can sign a postnuptial agreement at least seven years before the marriage disintegrates.

In the event that you are unable to protect your business from your spouse and they get assigned some percentage of the business, you may be able to use a whole-life insurance policy or any other insurance policy that builds cash value to buy out your spouse's portion of the business assets so that the business can remain owned and controlled by you.

20 Sep 2016 11:19