Protecting Your Business in a Divorce

December 21, 2011

If your marriage is ending, you might not be thinking about protecting your business interests. You could be caught up in the emotions of the situation, worried about the custody of your children, concerned about new living arrangements or reeling from the blow of an unexpected divorce filing. No matter what the situation, though, if you want your business to thrive after your marriage is dissolved, you need to expend some time and energy taking steps to protect it.

Some steps can be taken to protect the value of your family-owned business or your interests in a larger company long before your marriage shows any signs of trouble. For example, a well-crafted prenuptial agreement -- entered into before you and your spouse walk down the aisle -- can go a long way towards ensuring that the business remains in your hands should the marriage end. Another step that can be taken before your marriage is in trouble is to transfer the business holdings into an irrevocable trust. Or, if a prenuptial agreement wasn't executed before the marriage, it might be possible to enter into a postnuptial agreement (sometimes called an "antenuptial agreement") that protects the value of or interest in one spouse's business.

Prenuptial Agreements to Protect Business Assets

If one potential spouse has a particularly valuable or important business interest, he or she might benefit from having a prenuptial agreement drafted that would determine what assets each spouse would get in the event of a divorce. Prenuptial agreements are great tools for ensuring that family-owned businesses, land, heirlooms or other valuable property stays separate from the marital estate. They must be carefully drafted, however, and adhere to strict guidelines in order to be effective. Ideally, each party would be represented by his or her own counsel and the agreement would be signed in due time before the marriage, not at the last minute lest it be seen as coerced. The same can be said about postnuptial or antenuptial agreements that disperse business assets. Those agreements must also be property drafted and executed to be enforceable.

In addition, enforceable prenuptial agreements must:
- Be in writing
- Based on a full disclosure of assets -- an agreement could be invalidated if later it is discovered that one party purposefully hid assets or undervalued property as a way to entice the other party to sign the agreement
- Be executed voluntarily, knowingly and without coercion
- Be signed by both parties
- Be fair on its face -- this doesn't mean that the agreement must dictate that each party walk away with an equal amount of property, just that the agreement not be patently unfair to one party (i.e., a millionaire spouse only giving a nominal sum to his or her much poorer spouse in the event of a divorce)

Even otherwise properly executed prenuptial agreements must be based upon correct information and a properly performed business valuation in order to be an enforceable tool to protect an owner or operator's business interests in the event that a marriage ends. If the business is not properly valued by a financial expert with the skill and knowledge necessary to determine not only the current fair market value but also the potential value it might have in the weeks, months and years to come, then the agreement might be voided.

The Importance of Proper Business Valuation

If a business is not properly valued -- with both the current fair market value and projected growth taken into account -- then it may be nearly impossible for the court to come to a fair divorce-related property settlement. Accountants, specialized business appraisers, brokers and financial analysts might all be helpful when it comes time to determine the worth of a family-owned business or a party's share in a partnership or limited liability company. Only after the proper valuation has been done can it be truly possible to determine the value of each spouse's contributions to the business and what he or she should be awarded in a property settlement.

If you are thinking about divorce or you are currently involved in a divorce proceeding where the value of a business is at issue, seek the advice of a skilled family law attorney in your area to protect your legal rights and learn more about options you have to proceed.

Article provided by Curtis R. Cowan, P.A.
Visit us at www.curtcowanlaw.com