If you own your own business, it is crucial that you take steps now to protect your business from the complications that can arise during a divorce or dissolution. Your business is your livelihood, and the last thing you want is to lose your spouse and your business all at once because you are forced to liquidate your business assets in order to pay the divorce settlement or spousal support. Here are some tips to help you protect your business.

Understand Community Property Issues

California is a community property state, meaning that everything purchased or acquired during the course of the marriage (with the exception of gifts, inheritances, and rental incomes or profits from separate property) belongs to both partners equally. If you and your spouse start a business together, you will each have 50 percent ownership in the business and a right to 50 percent of the assets/business value should you divorce.
If you already had a business before you married, that business is considered your separate property. While the wages, pensions, or stock options earned from that business would be considered community property, the business assets themselves should be considered separate property. If you do not want your spouse to have any equity in a business you started before you were married, it is crucial that you not put any community money into that business. If you do allow your spouse to contribute to the business, say with funds received as an inheritance, you will need the assistance of a skilled attorney to untangle all the threads and figure out how much equity each spouse is entitled to.

Get a Prenuptial Agreement

Many complications can be avoided if you and your spouse have the foresight to sign a prenuptial agreement before getting married. The agreement can specify exactly how your business assets and debts will be divided in case of divorce. Prenups are most often used to cover property that has been acquired before the marriage, but they can also contain stipulations as to how future property will be treated.

Try a Postnuptial Agreement

If you’re already married, you can use a postnuptial agreement to accomplish the same things as a prenuptial agreement. However, judges tend to be suspicious of postnups and your spouse may be able to get a postnup overturned.

Get an Accurate Business Valuation

If your business is community property, getting an accurate valuation of that business is very important. This ensures that each spouse gets a fair deal should one spouse decide to buy out the other in order to obtain sole control of the business. A forensic accountant and an attorney familiar with business valuations will prove to be invaluable partners in this process.
Is Your Business Set Up to Withstand the Complications of Divorce or Dissolution?