Planning for a business during a divorce

California business owners often do not consider the potential for divorce when they decide to marry. Still, the presence of a business means that entrepreneurs may need to consider additional protections before or after they tie the knot. Many equity investors may even insist on protections that could safeguard the business from being divided or destroyed in case of the end of a marriage. In many cases, both spouses are deeply involved in a business’ success or failure. Making an agreement does not need to mean that one spouse is deprived of the value they deserve, but simply creates a framework for fair distribution.

One of the most important ways that people can protect their businesses is by signing a prenuptial agreement or even a postnuptial contract. The agreement may classify the business and its value before marriage as separate property. Even if it recognizes growth as marital property, it could specify a certain cash value or percentage to be paid to the other spouse, rather than dividing the business itself. This kind of agreement can also specify which partner would buy out the other in a divorce, in case both are full partners in the enterprise.

There are practical steps that people can take to ensure these agreements are upheld, including keeping business expenses and personal costs separate. Avoiding commingling funds can establish the difference between business and personal wealth. In addition, judges are likely to frown upon attempts to understate personal income by keeping wealth in a business designated as separate property, and the business owner’s income may be imputed at a market rate.

The end of a marriage can be a difficult time, emotionally and financially. Business owners might benefit from bringing their concerns to a family law attorney who could help them seek a fair resolution on property division and other divorce legal issues.

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