Divorce can have a major impact on your business. In addition to being distracted from work from preparing for meetings negotiations, and legal proceedings, you may lose your investment in this important and hard-earned asset.
Start now
California is a community property state where marital property acquired during the marriage, like a business, is divided equally. With this in mind, however, you may be able to develop a plan and take steps that lead to a fair and reasonable business division.
Any business acquired or started before marriage can remain separate if precautions are taken. That asset may become marital property if it is commingled or funded with marital assets or if its value increases.
Entering a prenuptial agreement before marriage allows couples to determine the fate of their property. A prenuptial agreement is a contract where the couple agrees on whether and how property, such as a business, may be divided and provide a method to place a value on their business if it is subject to division. Parties must fully disclose their assets before entering these agreements.
Spouses may also enter a postnuptial agreement with similar terms after their marriage. A postnuptial agreement is also recommended where the couple’s assets changed during the marriage, or a business grew or was acquired.
Other protections
Paying yourself a competitive salary is important. Foregoing a salary and reinvesting everything into your business may lead to a claim that insufficient income went into the household.
A shareholder, partnership, LLC, or buy/sell agreement can include provisions that protect other business owners if anyone gets a divorce. Agreements, for example, may require that unmarried shareholders provide a prenuptial agreement to the business before their marriage and a waiver from their future spouse where they forego any interest in the business.
Agreements may also prohibit the transfer of shares without the approval of other partners or shareholders. Agreements can also grant partners or shareholders the right to purchase the shares or interests of the spouses so that they can keep control of the business.
Make a deal
Reaching an agreement with your spouse allows you, instead of a judge applying California law, to resolve this issue in a manner that meets both of your needs. Successful negotiation eliminates the need for a costly trial with an uncertain outcome.
Attorneys can help negotiate agreements and provide options that meet your needs. They can also help protect your interest in negotiations and legal proceedings.
