Managing a business is a huge responsibility on it’s own, but dealing with a divorce at the same time can be even more stressful. What’s more, a business can be one of the most difficult assets to divide after a divorce. According to New Jersey family-law attorney Robert Kornitzer,in a typical scenario, “you get married young with no prenup and you have $100,000 business…not anticipating that, 20 years later, it’s a $5 million business, and now the spouse has some stake in the growth of the business.” If your business is considered a joint asset, and a divorce is underway or possibly in your future, there are several steps you can take to divorce-proof your business.
First of all, make sure to keep good, detailed records, and keep your family’s finances separate from those of your business. “Don’t borrow out of the house [account] to buy company trucks,” advises Kornitzer.
It is also important to pay yourself a sufficient salary. Beware paying yourself less in order to build the business. According to Jeffrey Landers, founder of New York City based financial strategy firm Bedrock Divorce Advisors LLC, if you reduce your own salary to benefit the business, you run the risk of a divorce lawyer arguing that your ex is entitled to more of the company’s assets. “If you paid yourself $80,000 a year instead of $300,000 and were hoping on retirement to sell the business and enjoy the proceeds together and now that’s not happening, then your ex will want [their] share of the company,” says Landers.
Though it may be difficult, it is also advised that you ease your spouse out of your business as soon as possible. If you ex is significantly active in the business, a lawyer may be able to make a strong case that your spouse deserves profit from its growth because they played an integral role in helping build the business.
If you truly want 100 percent ownership of your business after the divorce, it is important that you are willing to make sacrifices in the form of other assets. In a divorce settlement, all of your assets will be added up and divided between you and your spouse. You will have a better chance of retaining full ownership of your business if you are willing to give up other assets such as the family home, vehicles, or other collectibles.
There are also several precautions you can take before a divorce to prevent you from losing your business. If your business existed before your marriage, it is important you sign a prenup to designate your business as a separate property owned only by you. It is also a good idea to sign an early postnup. A postnup is similar to a prenup except that it is signed after the marriage. If it is signed significantly before the beginning of the breakup, it could be helpful in defining the business as your own separate property. For additional information on protecting your business during a divorce, seek advice from an experienced divorce attorney.
