Ending a marriage is neither fun nor a simple endeavor. And if you own a business, it can get even more complicated. As couples eagerly anticipate their nuptials, the last thing typically on their minds is the possibility that they may one day split up. Thinking ahead about protecting your business from divorce is about the least romantic thing most people in love can imagine. But if your business is your livelihood, there are some things you can do both before and during your marriage to help protect it in the event that you and your spouse do not live happily ever after.
First Things First: Marital Property
To properly understand what can happen to your business if you divorce, you need to know what marital property is and a bit about how it’s divided in a Washington divorce. Most states have adopted equitable distribution statutes that direct judges to split marital property so that the end distribution is fair. This does not necessarily mean that marital property is split evenly.
While not all property is community property in a marriage, there is a strong presumption that all assets and debts are marital property in Washington. But a judge can still rule some property to be classified as separate property. Examples of possible separate property include:
- Assets or debts either spouse accumulated before getting married;
- Gifts or inheritances bestowed upon one spouse during the marriage; and
- Property specifically designated as belonging to one spouse in a prenuptial agreement.
Assets that you bring into the marriage can include your business if it existed before saying, “I do.” But keep in mind that even separate assets can become marital property if you commingle them with marital assets during your marriage. And that is very, very easy to do. For instance, if you use money from your personal bank account to pay for business expenses, you put business money and personal money in the same account, or your spouse starts working for the company, a judge could decide that the entire business is now marital property regardless of its premarital inception. Since it’s so easy to commingle assets of your business during the marriage, let’s look at some ways to protect your business from divorce.
Ways to Protect Your Business from Divorce
As the saying goes, an ounce of prevention is worth a pound of cure. So getting out in front of this issue before it materializes is one of the best ways to protect your business from divorce. Here are some ways to do that.
1. Prenuptial Agreement
If your business exists before getting married, you can use an experienced attorney to help you draft a prenuptial agreement that specifically designates who the business belongs to and how it shall be divided in the event of divorce.
2. Postnuptial Agreement
If you start a business after marriage, spouses can enter into a postnuptial agreement. In this document, you can agree to who retains ownership of the business venture if the marriage ends. Neither of these marriage agreements is romantic, but they can save you a lot of heartache down the road.
3. Use a Neutral Valuation Professional
How much your business is worth matters a great deal during a divorce. If your spouse is saying it is worth five million dollars and you know it’s not, you will likely have to hire a professional who is neutral and can properly assess the value of your enterprise. This costs money but is likely to save you many headaches and possible financial stress down the road.
4. Buy out Your Spouse’s Share
After you have properly assessed the value of your business, you can offer to buy out your spouse’s share. Again, this may be more difficult than it sounds if money is tight. But a professional can likely help you see some strategies for accomplishing a buyout. Maybe you can sell a minority share in your company to someone else to get the funds. Or you can offer shares to your employees or even find an investor. You could also give your share of other assets, such as equity in the marital home, to your spouse to get them to give up their interest in the business. Or perhaps your spouse will agree to monthly payments in lieu of one lump sum. The possibilities are out there; you may just need some help thinking it through. But if you and your spouse can agree to a buyout, this will prevent a judge from giving away more of your hard-earned enterprise than you want.
The legal team at Bolan Law Group., is intimately familiar with the financial and emotional toll that a divorce can have on you. We are sensitive to your needs and provide caring, compassionate, and personal attention to you and your case. But don’t let our compassionate nature fool you. We are strong, experienced trial advocates, and we will not hesitate to fight for what is rightfully yours during a divorce. We know the law, and we will use it to protect your interests. So don’t hesitate. Call us directly or contact us online today to schedule your initial consultation with one of our lawyers.