How Can I Protect My Business During My Divorce?

October 14, 2018

You are a small business owner.  You worked 60-hour weeks, invested money, sacrificed time with family and friends and now, finally, are reaping the profits from your business.  Your spouse enjoyed the benefits of your hard work but now, you find yourself embroiled in a bitter divorce.  Worse, your spouse is demanding a piece of your company.   In Massachusetts, a closely held business is considered an asset of the marriage and divisible as part of the settlement.   What can you do to protect your business and income?  Below are ways to be proactive and protect your business during a divorce or other unexpected life events.

Draft a pre-nuptial agreement

A pre-nuptial agreement can be written with specific instructions stating what is to happen with the business in the event of a divorce.  Think of your pre-nuptial agreement as another business planning document.  The agreement can discuss a business that you had prior to your marriage as well as what will happen to any new entities created during the marriage.

Draft a post-nuptial agreement

Not as common as a pre-nuptial agreement, a post-nuptial agreement is similar to a pre-nuptial agreement except it is drafted during the marriage. Terms and conditions can be negotiated and drafted to discuss the future of your business in the event of a divorce.

Keep accurate business records

Do not co-mingle your business with your personal funds. It is all too common during a divorce, the spouse with the business is called upon to produce volumes of records to verify the business profits and value. Bitter disputes often arise when one spouse accuses the other of hiding business assets in unrecorded cash transactions and disguised personal uses.  Detailed separate accounting records will help avoid the costly and time-consuming litigation to ferret out business versus personal income.

Hire a professional business evaluation

When divorce is imminent and you are a business owner, it is a good idea to have a business evaluation conducted prior to your divorce.  You will have all the business documents and information concerning profit, loss, and value ready and will have the upper hand during settlement negotiations.

Contact your lawyer

Contact your lawyer to discuss drafting partnership and buy-sell agreements in the event one partner divorces. Depending on your specific business entity and corporate structure, you can draft agreements that designate if one partner divorces, shares are sold to the remaining stockholders.  This is not a guarantee that your spouse will not gain any of your business assets, but it may prevent your spouse from becoming an unintended owner of your business.

Do not hesitate to call Fleischer Law Solutions with any questions concerning your small business during divorce or any other asset protection issue.