Women Business Owners: How to Divorce-Proof Your Company

by Jim Hughes 4 months ago in divorced

In love, we all want a happy ending. But the sad reality is that it doesn’t always happen.

Women Business Owners: How to Divorce-Proof Your Company

In America, 50 percent of marriages end up in divorce. There is a divorce happening in approximately 36 seconds, which totals to about 2,400 divorces per day!

Divorce is such a painful process. Alongside the emotional pang of ending a marriage, you once thought would be your ‘happily ever after’, there are so many financial and legal consequences attached to it too. And if you have a business, the more the process gets complicated, difficult, and sometimes… devastating.

How Does Divorce Impact Your Business?

If you own a business, a divorce can put you in a very difficult situation. You could end up still having to deal with your soon-to-be ‘ex-husband’, give up half of it in community property states, or totally lose it to your ex-spouse. For sure, none of these scenarios is what you plan to have but they could happen if you don’t protect your business. And it doesn’t matter whether your spouse didn’t want to take part in running the company you’ve built during your marriage or if all the capital came from your pocket. Without taking steps to divorce-proof your company, you could lose it, along with your marriage.

How to Divorce-Proof Your Company

Thankfully, there are different ways to protect your business from divorce and any financial stress attached to it.

Before divorce even happens (or enters your mind), take these important steps:

Make a prenuptial agreement

Because divorce is such a common thing these days, many couples consider making a prenup agreement to protect their personal assets, including their business. A prenup is a legal agreement between spouses that their respective properties are considered separate in the event of a divorce. This is especially useful if your company is already fully established prior to your marriage.

Keep personal and business expenses separate

You want to establish a fine line between your family finances and your business account. Keep records of all transactions and never use your household fund to support your business, even your personal credit card. That said, do not use loans, credit cards, etc to buy new equipment for your business, rather, allocate online cash advance for your family needs. If you need money to purchase equipment for your business or increase your inventory, file a separate loan application using your business name.

Create a buy-sell agreement

This written contract, which should be constituted even at the early stages of your business, determines exactly how the transfer of an ownership interest will take place in case "triggering events" occur, such as the death of one of the co-owners, disability, or divorce. You can require your spouse to waive any and all rights or ownership in case of divorce.

Stay hands-on with your business

As much as possible, don’t let your spouse take significant control over the company you’ve built. The longer he holds a valuable position, the stronger the case his lawyer can build, suggesting that he deserves a fair share in the business for having contributed to its growth.

If it’s too late for the steps mentioned above, here are some legal steps you can do to protect your business from divorce:

Give up half the business through marital assets

Giving up half of your business could mean giving up some of your assets to your ex so you could retain full ownership and control of your company. During your marriage, you most likely have acquired several properties together, such as your family home, cars, valuable collections, artworks, etc. Instead of giving your ex his share of the company, you can allow the court to give your ex an extra share of these marital assets.

Establish its fair market value

Find a neutral evaluator to provide a reliable estimate of the fair market value of your company. In most cases, if the business represents a source of future income, divorcing couples will think it makes more sense to retain the business than to sell it especially if interested buyers are willing to buy it at a lesser market value. You could keep your business by purchasing your spouse’s share of it. If you don’t have enough money to pay his share in cash, arrange to make small monthly repayments. These payments could come from your business profit.

Behind every successful business is a lot of sweat, tears, and bloodshed by the owner. Understanding how a divorce can impact your hard-earned business is very important even before you entertain the idea of getting married. It is worthwhile learning about the different ways to protect your company (even your personal assets) beforehand instead of having to go through the emotional and scary process of trying to save your business when it’s a little too late.

Jim Hughes
Jim Hughes
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