How To Protect Your Business During a Divorce

As many can attest, a marital breakup is never easy, especially when it comes to determining how to divide the marital property. Because Florida is an equitable distribution state, marital property must be divided in a way that is fair to both parties, however, this does not mean equally. Moreover, these issues become even complex when one or both of the spouses own a business. This article is a brief discussion of how to safeguard your business assets in a divorce.

Choose the Appropriate Business Structure

The first consideration for any small business owner is to select the right business entity, which can go a long way to protecting your business assets in a divorce. For many business owners, establishing an S Corporation or a Limited Liability Corporation (LLC) allows you to create a separate legal entity to hold the business assets. It is worth noting, however, that if any marital assets are used for the business, these can be recaptured in a divorce proceeding. Moreover, depending on a number of factors, the court may find that the business is marital property.

Prenuptial or Post-marital Agreements

Given that a divorce can undermine a lifetime of hard work and dedication, the best way to protect a business in a divorce is to create a prenuptial or post-marital agreement. While many believe that these agreements are only for the rich and famous, marital agreements are an effective tool for separating business and marital assets.

In short, these agreements clarify the property rights of each party in the event of a divorce. In the context of a small business, marital agreements will clarify whether any of the business is marital property, how much of the business assets are separate property, and establish a method for valuing and distributing the business. Without a prenuptial or post-marital agreement in place, business may be subject to the state’s equitable distribution rules.

The Takeaway

Ultimately, it is important to take steps to keep a small business running during a divorce proceeding. Keep in mind that if the other spouse worked for or helped to run the business, he or she may be entitled to a significant share of the assets. In some cases, the other spouse may be awarded other marital assets in lieu of the business assets, such as cash, stock or other investments. On the other hand, it may be necessary to sell the business entirely and divide the proceeds. In any event, you are well advised to engage the services of an experienced divorce attorney with an understanding of marital assets.