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Protecting a family business during divorce

On Behalf of | Jun 17, 2024 | Divorce |

Some people start a business because they want to offer their families a better standard of living. Others take over a business previously run by their parents or grandparents. Whether someone purchased, inherited or started the business they run, it may very well be one of their most valuable personal holdings.

A business represents a substantial amount of investment and also the possibility of future income. Someone running a successful business or professional practice probably worries about what might happen to the company if they divorce.

How can business owners protect their holdings when they decide to end a marriage?

With a marital agreement

One of the simplest means of protecting a business from divorce is to sign a contract with a spouse designating it as separate property. Prenuptial agreements signed prior to marriage and postnuptial agreements signed during the marriage can help someone protect personal resources if a divorce occurs. Those still trying to work on their marriages or those who already own a business when getting married may recognize how valuable signing a contract to address those holdings could be.

With careful negotiations

Many couples do not take the details of their divorce to court. Instead, they attempt to collaborative divorce where they cooperate or attend mediation. If someone agrees to let their spouse keep other property or to provide financial support, it is often possible to reach an agreement that allows them to retain sole ownership of the business after the divorce.

With a proper valuation

Not everyone can achieve an amicable resolution to divorce matters. Some people need the intervention of a judge to settle their disagreements. In such situations, the property division terms set by the courts largely depend on a judge’s perception of marital circumstances and the overall value of the marital estate. The business valuation process can be very important during divorce litigation, as it helps ensure that a judge doesn’t assign too much value to the company.

Depending on the type of business someone runs, the value of their other assets and the relationship they have with their spouse, there are many different approaches that can help preserve an ownership interest in a company during a divorce. Those preparing for a complex or high-asset divorce often need to identify their priorities early in the process. Doing so increases the likelihood of a positive outcome.