Protecting a business from divorce can be a complex process, but there are several steps you can take to safeguard your business interests. Here are some ways to protect your business from divorce:
- Prenuptial or Postnuptial Agreement: Consider having a prenuptial or postnuptial agreement that clearly outlines the ownership and management of the business in the event of a divorce. This agreement should be drafted by a qualified attorney and signed by both parties.
- Keep business and personal assets separate: Ensure that the business assets and finances are kept separate from personal assets and finances. Keep accurate records and avoid mixing business and personal funds.
- Have a clear ownership structure: Establish a clear ownership structure that outlines who owns what percentage of the business, and ensure that this information is clearly documented and legally binding.
- Update legal documents: Regularly update legal documents, such as the business’s operating agreement, to reflect changes in ownership or management. Ensure that these documents are reviewed and updated by a qualified attorney. Business contracts should be drafted which contain involuntary buy-out provisions so that if a particular event occurs, such as a shareholder starting a divorce proceeding, there is a mandatory sale of stock. The agreements in place should set a mechanism to calculate the sale price and set forth the timing and process for payment of the purchase price.
- Obtain insurance: Consider obtaining insurance that specifically covers divorce-related disputes, such as key-person insurance or buy-sell agreements.
- Plan for succession: Develop a clear plan for succession in the event of a divorce, death, or disability (“Triggering Event”). This plan should include a specific strategy for transferring ownership and management of the business to another party or parties in the occurrence of a “Triggering Event”.
- Seek professional advice: Consult with a qualified attorney (or attorneys), accountant, or financial planner to discuss options for protecting the business in the event of a divorce, death, or disability. Corporate documents must be drafted so that they work seamlessly with estate planning documents and pre-nuptial or post-nuptial agreements. That possibly entails corporate, trusts and estates, and matrimonial attorneys coordinating their efforts.
It’s important to remember that these tips are general guidelines and may not be appropriate for every situation. It’s essential to seek professional advice and support to develop a comprehensive plan that is tailored to your unique circumstances.
