For many momtrepreneurs, running a business with their husband can be a dream come true, since they get to do something they feel passionate about while working with someone that they love and trust completely.
However, the truth is much more dire than that dream, especially when we consider the 25% to 35% increase in divorce cases this past year. Being forced to run a business with your soon-to-be ex-spouse can be a nightmare, especially when your business is likely one of the most important financial assets you have. You may even be at risk of losing the business you invested so much time and effort to nurture over the years.
Anyone who finds themselves in such a situation will naturally want to find a way to continue with the divorce without losing any assets related to the business. However, divorce is a complex facet of the law, since of the legal principle that a marriage is more than just a union between two persons; it is also the union of their assets.
Understand that the instruments listed here are of a preventive nature rather than remedial. These instruments must be used even before the thought of divorce even manifests.
Prenuptial and Postnuptial Agreements
A prenuptial contract is an agreement that is entered into by couples before they are married. This contract defines each party’s rights when the marriage is rescinded. A well-drafted prenuptial contract can even override a state’s Common Property laws as well as their Equitable Distribution laws.
On the other hand, a post nuptial contract is similar to a prenup except that it is signed after a marriage. This is primarily used as an instrument to address concerns when a significant financial change occurs (changes such as receiving an inheritance, winning the lottery, or establishing a business).
Both these documents can be used to grant you exclusive rights of ownership over your business after a divorce, but a prenuptial contract is going to be more enforceable because of the fact that this type of agreement is made before the couple is wed and before their financial assets have mixed.
Separate Business-Related Finances From Marital Finances
Never borrow money from the household’s account to make business purchases, as household income is treated as a joint asset. Any subsequent acquisition that is purchased using a joint asset automatically becomes a joint asset itself. If you use money from your household to account to purchase company trucks, the company trucks become marital property, which also increases the contributions of your spouse to your business. Always keep your business finances separate from that of your business’ in order to establish a clear distinction between them.
There are many reasons why you’d want to sign an LLC agreement, but for the purpose of this discussion, an LLC agreement details what happens to the shares of a business partner who leaves the business because of the divorce. LLC agreements are extremely potent because there are many provisions that can be used to secure your business following a divorce. Some examples of these provisions are:
- The prohibition of transferring shares without the approval of other shareholders
- The requirement that unmarried shareholders must present a prenuptial agreement to the company
- A waiver that a spouse denies any future interest in the business following a divorce
Last Resort: Buy Out Any Interest In Your Business
If you aren’t able to put these legal instruments into motion, there are still a few ways to help you retain full ownership of your business. If all else fails, you can opt to pay off your spouse’s interest in your business. This is perfectly legal, but it is also far less than what is ideal. Here are some ways to go about it:
- Retract your claim of other assets in exchange for full ownership of your business
- Offer a property settlement note that offers a deferred payment for the amount you owe (for the value of his business shares), plus interest. The payments for the property settlement note can come from the cash flow of your business or through a bank loan
- Sell your business, divide the proceeds from the sale based on your shares of the business. While this is the last thing you’d want to do, this is the only way to ensure that you get the most value out of your business (assuming that your shares of the business are significantly higher than those of your husband’s). You can then use the money for a fresh start with a new business
Divorce is a sour process to go through due to the emotional attachments involved, along with the assets at stake. It’s important to note that the information contained herein is not legal advice. Always consult a seasoned divorce lawyer like the ones from the Law Offices of Thomas Stahl to ensure that you walk away from your marriage with the best possible outcome.