Protecting Your Business Before You Get Married

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In the USA, divorces are common. And even if your spouse has little to no involvement with your business, a divorce can still be a costly, devastating event for you livelihood. Here’s how to avoid that.

It’s an unfortunate reality that around half of all marriages in the United States end in divorce. This may be one of the reasons fewer couples are deciding to get married. When you do get married and then ultimately divorced, it can be not only emotionally draining but financially draining as well.

There are services and technology resources like LegalZoom that are working to simplify the divorce process and make it less expensive, but even those kinds of tools don’t take away from the fact that you have to divide parenting time and assets.

If you own a business, dividing assets can be especially problematic, because that business may be viewed as marital. You may have to pay your former spouse for their interest in the business, even if they had very little to do with it. Another option is to sell the business, and for some entrepreneurs, neither of these options sound particularly appealing.

It’s best if you are an entrepreneur and you’re on your way to getting married to protect yourself beforehand. It’s not necessarily a romantic task to take on, but it’s one you may be very thankful for in the long run.

The Value of Your Business

If you have a business, even if it’s a new startup, it’s probably the most valuable asset you have, which is why it’s important to think about it and include it as part of your prenuptial agreement. Even if you weren’t going to get a prenuptial agreement if you have a business you should.

If you have a business and you get divorced, depending on your specific situation your former spouse may be entitled to as much as half of it. This can mean that it costs you a lot of money to buy that person out, or you may even have to let them stay involved in the business if you aren’t able to buy them out or they don’t agree to that.

Prenuptial and Postnuptial Agreements

There are two formal ways that a couple can protect their individual assets, including a business. One is a prenuptial agreement, often just called a prenup. This is the more common route most couples will take. A prenuptial agreement is something you both sign before you get married that has all the details of what will happen if you get divorced.

A prenup can include any alimony or similar compensation that would be paid, and it can also include details of how a business would be dealt with. Often a prenup can take precedence over community property state laws, so they are one of the best ways to protect your business.

However, not all prenups are created equally, and it needs to be well-drafted to protect your company.

A postnuptial agreement is similar, but it can be done after you’re married. However, it would be presumably done when you aren’t considering divorce. A postnup can be difficult to validate, and not all states recognize them, so these are things to consider. When given a choice a prenup is the better option.

If you have a prenup drafted and you’re a business owner, certain provisions should be included. One example of a provision to make sure you have is that your future spouse should sign a waiver to potential interest in the business. If you have business partners and they get married in the future, they need to do the same.

There should also be a clause preventing the sale or transfer of shares without the approval of other shareholders and partners of the business. There should also be a right of the other owners of the business or shareholders to purchase the interest of the person you’re divorcing if they choose.

Pay Yourself Well

Finally, one of the most important things to keep in mind, regardless of where you are regarding your business or relationship is that paying yourself a competitive salary is essential to protect your business if you do get divorced.

If you don’t pay yourself a competitive and reasonable salary, but instead you put all that money back into your business, and you then get divorced, it can create problems. Your former spouse may be able to claim that they deserve more money or a larger interest in your business because they didn’t receive any benefit from the money you should have been earning as you were building your business and reinvesting. If you’ve been paying yourself as you would be compensated for similar work elsewhere, you can avoid this problem.