Burke Levy, P.C.

Is your business divorce-proof?

If you own a business, you are probably used to preparing for contingencies. You may have alternate plans for bad weather, sick employees or insufficient supplies. You may even carry insurance against injuries, accidents and lawsuits. However, one thing you may not have planned for is divorce.

Whether you were already an entrepreneur when you married or you established your business sometime after the wedding, at least some element of your company may become fair game for asset division unless you have taken steps to prevent it. If the court decides your business is marital property, according to Massachusetts law, it must be included in the settlement. This could mean the end of your livelihood.

Protecting your business from asset division

One of the safest ways to protect your business in the event of a divorce is a prenuptial or postnuptial agreement. Marital contracts can identify any assets that are yours prior to the marriage and exempt them from any claims from your spouse during asset division, even if your business appreciates while you are married. However, not every entrepreneur considers such an agreement until it is too late, and you may be one who must try alternatives for protecting your business, such as:

  • Document the contributions your spouse made to the business. The less your spouse is involved, the better your chances for a positive outcome.
  • Review your business documentation to see if it contains restrictions on the company's ownership transfer.
  • Consult with your partners about revising your partnership contract to include the option for them to buy out your interest in the company. This may prevent your spouse from gaining partial ownership of the business.
  • Negotiate with your spouse on an agreeable business value so that you can offset your spouse's interests with cash or other assets.

These suggestions, with the guidance of an attorney, may allow you to hold on to your business so that you can continue to use it as a source of income and personal success. However, if your spouse was involved in the running of the business, offered valuable ideas to its success or played a substantial role in its establishment, you may have no choice but to see it become part of the division of property during your divorce.

If you are in such a situation, you will want to ensure you obtain a fair valuation for your business, including those intangibles that may be difficult to appraise. Seeking the appropriate legal representation is important when your business is on the line.

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