When a couple divorces, they must work to untangle their lives from one another. As such, matters related to child custody, property and marital assets must be sorted out and agreed upon. For individuals who own a business or have a stake in a family business, divorce may present challenges that ultimately threaten a business and its success.
Business owners are often extremely dedicated individuals who work hard to ensure a business is successful. However, business owners who fail to take steps to safeguard a business from a spouse, could ultimately end up losing their business or see profits severely diminish. When a business owner goes through a divorce, an ex-spouse may be entitled to a portion of profits or a stake in the business. It's important; therefore that men and women who own a business take steps to protect the business and its profits from being included as marital property.
While in the midst of planning a wedding, no one wants to bring up anything related to divorce. The fact, however, is that more than 50 percent of first marriages in the U.S. will end in divorce. From a business standpoint, these are not good odds. Therefore, as difficult as it may be, it's important to have a prenuptial agreement in place to ensure a business is and will continue to be defined as property separate from a soon-to-be spouse.
For those who fail to secure a prenuptial agreement that defines a business as separate property, the business will be considered marital property and therefore subject to division in a divorce. In some cases, it may be possible to negotiate with an ex and buy he or she out of their stake in a business. Doing so, however, can be difficult financially and may require a business owner to borrow against expected future earnings or secure a loan.
Business owners going through a divorce potentially have a lot to lose if they fail to take steps to protect a business from an ex-spouse. In cases where a business owner failed to take steps to protect a business and its assets prior to a marriage, an attorney can work to negotiate more favorable terms during the divorce settlement process.
Source: The Business Journals, "How to divorce-proof your business," Rosemary Frank, March 2, 2014