Protecting Your Business During a Divorce

As a business owner, you’re probably used to tracking a wide range of risk factors, whether it’s your competitors, technology, supply and inventory costs, marketing, and churn among others. However, have you stopped to consider the damage a divorce can do to your business?

If you’re managing a family-owned business together with your spouse, a separation can be put the fate of your company in jeopardy. And for couples that have their entire net worth tied to their business, a divorce can easily be the ruin of their financial health, leaving them with insufficient cash to buy each other out.

Depending on the circumstances of your divorce, you may have to keep the business up and running and split profits, which may not be an option for ex-spouses who have parted on bad terms. Another option is to shut down the business entirely and split the assets, or sell the business and split the selling the price.

But it doesn’t have to be this way, not when you have a number of options for protecting your business.

Get a Prenuptial if You Can

Although it has a pejorative aspect, a prenuptial agreement before your marriage can help save your business by specifying what happens to the company should your marriage end in a divorce. When done right, prenups can be airtight, protecting your company from property-division laws, even in community property states like Texas.

An ironclad prenup should have the following characteristics:

The agreement comes in a written document
It’s executed voluntarily before witnesses
It has full disclosure from both spouses (i.e. cannot be unconscionable)

Use a Trust to Protect Succeeding Generations

It takes foresight, but one of the best ways to protect your family’s wealth in the long term is by using a trust, which will protect the next generation of your family should any of them go through a divorce.

For example, if a father gives his son shares in the family business worth $2 million, this amount can be placed in a trust accessible to him and only him. Should he marry and remarry in the future, his spouse cannot touch this money, even during a property division battle.

Stay Together for the Business

One of the simplest solutions to managing a business during a divorce is to remain as co-owners, even after dissolving the marriage. This, however, is easier said than done, as many divorcing couples are locked in emotional battles and cannot stand the sight of each other, much less run a business together. Still, this option is worth considering if you and your ex-spouse parted on amicable terms and can agree to “stay together” for the company.

You’ll often hear many businesspeople say that business is business, even when family is involved. But when it comes to divorce, the lines between family and business can get blurry.

If you’re divorcing your spouse, it helps to get a divorce lawyer to help you make the best choices for the health of your finances and business. Schedule a consultation with family law attorney Daniella Lyttle to discuss your legal options in a divorce. Call the Lyttle Law Firm today to find out how we can help you.