Considering the risks and benefits involved in a business is common for business owners; however, there are some unexpected events that could significantly harm business operations. Nonetheless, divorce should not be treated as a surprise or unpredictable event. Because roughly half of all marriages in the U.S. end in divorce, with a higher rate for those in a second or third marriage, it is recommended that owners consider how a divorce could impact their business.
Whether you own a business with a spouse or are operating a family business as a second, third or fourth generation, steps could be taken to protect a business and its longevity in the event of a divorce.
The first and rather common way is to include a prenuptial agreement in a marriage. This is a contract that details what will happen to the business if the couple divorces. If the document is drafted properly, it can be ironclad, which helps with the negation of property-division laws. Even if a couple forgoes a prenup, a buy-sell agreement can be entered into. This agreement would require former spouse to sell any interests he or she received in a divorce settlement back to the company at a price set by a valuation method at that time.
Another protection method is a trust used for generational wealth. The assets of a family business can be protected in the long term through this trust as it shields the next generations in case they were to go through a divorce. While this helps protect assets passed onto other generations, it does not divorce-proof a business. Thus, other steps are often necessary.
Another option is to stay together in the business. This does not mean that the couple must remain married; however, it does mean that they will remain business partners for the sake of the business. If this route is taken, it is important to consider adding certain written agreements and contracts to the business relationship.
The final option is to take out a loan, buyout a former spouse or add a partner to the business. Taking out a loan could be the best route for one spouse buying out the other; however, if a business already has a significant mount of debt, it might be best to add a partner.
Source: Marketwatch.com, “How to protect your family business during a divorce,” Daniel Thompson, Feb. 10, 2017
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Partner at John F. Schutz, P.L.
Representing clients exclusively in family law cases for the past 24 years, Mr. Schutz is widely regarded as a marital and family law expert. He is Board Certified in marital and family law by The Florida Bar. As a Fellow of the American Academy of Matrimonial Lawyers (AAML), Mr. Schutz is committed to elevating the standards and improving the practice of family law.
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