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How can you protect your business in a divorce?

| Sep 25, 2020 | Divorce |

Divorce is complicated and messy, upsetting everyone, including family. If one spouse is the owner of a business, a majority shareholder or a partner with the other spouse, it can be even more fraught. For the purposes of divorce, the business may be a financial asset like any other in the marital property, and dividing it up in the divorce can have serious consequences.

During the property division process, everything that has been acquired during the marriage is put on the table, whether it is bank accounts, stocks, bonds, real property or business interests. Each item is given a monetary value. It then must be divided between the spouses in a way that meets standards of fairness under Maryland law.

If some of the business owner’s stock in the company is transferred to the ex-spouse in the settlement, it may make them a partner while diluting the stakeholder’s share. The business can also be destabilized if the ex had a senior position and remains with the company, or if they leave suddenly and sell their stock.

How can you untangle your business from the divorce?

Selling the business is the most drastic option, releasing you from an impossible situation where your ex-spouse still owns significant stock or is a partner. Or, by selling your stake in the business to the other partners with the option to buy back it later, you could save the business from dissolution.

Offering the ex-spouse another asset that is of equal or greater value than the business or owned shares, such as the family home, is possible. Making payments over time to the ex-spouse for the settlement can also save the business interest over time.

Can you be proactive?

Sometimes hindsight is the best teacher. At the outset of marriage, a prenuptial or postnuptial agreement spells out the relationship of the business interest to the marriage, whether or not it is joint marital property, what its agreed upon value is and if any appreciation will be passed on in a divorce.

Other proactive measures include putting the business into a trust so it won’t be divided in a divorce, having an insurance policy on the business, or separating finances so that no collateral from the home is used as investment in the business. These and other tips can save the business even if the marriage goes sour.