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How to protect a company during a divorce

by | Apr 27, 2020 | High-net Worth Property Division |

Everyone expects a happy ending to their marriage, but unfortunately, many relationships still end with the divorce settlement.

However, life doesn’t end with divorce. You have to work through the property division, child custody and emotional separation to move forward into your future. And for business owners, it also involves your livelihood.

Keeping the family out of the “family business.”

Most business owners worry about the implications a divorce has on their companies, especially if their spouse was actively involved in the business operations.

In California, the courts follow community property guidelines, which essentially means all marital property is split equally. The judge won’t consider the length of the marriage or earning power in a relationship. Instead, they split all shared property 50-50.

That’s why it’s crucial to show the court that your business isn’t marital property, or property shared between spouses. To qualify as separate property, the business needs to either: be owned before the marriage or a part of an inheritance or gift received by one spouse solely.

It’s challenging to prove a company is separate property if you invested joint-funds into the business or your partner was actively involved/worked with the company.

However, there are a few ways to protect your company during the divorce proceedings:

  • Establish a prenuptial or postnuptial agreement that separates your partner from the business
  • Pay yourself a decent salary, so your spouse isn’t entitled to more of the company.
  • Create a partnership or an agreement to “buy out” your spouse from the company shares
  • Settle on a compromise that maintains your control in the company and fair compensation for your former significant other

It depends on your relationship and business structure to determine what options work for you. Do not give into a settlement because you are afraid of losing your entire business. Take your time and consider your best strategy.