Avoid Losing a Business in a Divorce

April 05, 2012

Avoid Losing a Business in a Divorce

Business owners put a lot of time and energy into making their businesses successful, and often their businesses are their biggest assets. Certain things that business owners do may be turning parts of their businesses into marital property -- even if they started the businesses before the marriage. Arizona is a community property state, meaning the court will divide all marital assets equally between the spouses in a divorce. While no one likes to contemplate the end of a marriage before it even begins, Arizona business owners should take steps to protect their businesses in the event of divorce long before any signs of marital discord.

Legal Agreements

One of the best ways to ensure that a business will remain outside the property division settlement in a divorce is to draft a prenuptial agreement stating the business is not part of the marital estate. A properly drafted prenuptial agreement trumps the default state property division laws. People should consult attorneys to ensure that their agreements meet legal requirements to be binding.

If the parties did not have an agreement prior to the marriage, in some cases they can still sign a postnuptial agreement accomplishing the same thing.

Business owners can also incorporate buy-sell agreements within their business to protect the businesses from being involved in divorce settlements. The business can require unmarried shareholders or partners to have prenuptial agreements. The business can also prohibit transferring shares without the approval of other owners and give other shareholders the option of buying shares in the event of one shareholder's divorce in order to keep control of the business.

Business Practices

A business owner should pay attention to the daily operation of the business, as well, when trying to protect the ownership of the business. Business owners should pay themselves a competitive salary, rather than re-investing all of the profits back in the business. If all the money a spouse earned during the marriage went into the business, the court is more likely to view a portion of the business as marital property.

Additionally, business owners should keep their spouses from working in the business. If a spouse contributed to the success of the business, a portion of the business becomes marital property.

Consult Professionals

In the event that a business owner does go through a divorce, the owner will want to get a proper valuation of the business by a professional so that all parties have an accurate idea of the business' worth.

Business owners should also consult attorneys when facing divorce. Property division issues involving businesses can get complex, and having an experienced lawyer can help ensure the best possible outcome for the business owner's unique situation.

Article provided by Thompson Law Firm
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