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How Business Owners Can Avoid Losing Everything in Divorce

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According to the American Psychological Association, 40-50% of married couples in the U.S.A. end up getting a divorce. For business owners, these escalating statistics of divorce can carry additional consequences. Many couples tie their businesses (purposefully or inadvertently) to their spouse. When they eventually face a divorce, they can not only face personal emotional and financial loss but the possibility of financial ruin for their business as well. If you are a business owner and you want to avoid losing everything in a divorce, there are actions you can take. 

Tips for Divorce-Proofing Your Business Financially: 

  1. Prenuptial Agreement: Before the marriage, your family law attorney can draft a prenuptial agreement to identify the business as separate property. Make sure the prenup is valid and effective. Separate attorneys must represent both parties. The agreement must be in writing. No coercion should take place. The agreement must be based on full disclosure of assets and liabilities and if at all possible, should be witnessed by a third party. If you are already married, you can approach an experienced family law attorney about the protections available through a postnuptial agreement. 
  2. Creating a Domestic Asset Protection Trust (DAPT): If one or both spouses are not comfortable signing a prenuptial or postnuptial agreement, it may be a good idea to create a domestic asset protection trust. This trust does not require your spouse’s approval. It transfers ownership of the company into a trust, so the trust is the legal owner of the company. It’sIt’s a good option for most entities, but will not always be appropriate for S Corporations. Discuss the possibility with an experienced attorney to find out if it will work in your situation. 
  3. Keep Business and Personal Separate: Make sure that the business finances are kept separate from the personal funds with no comingling of cash or other assets. 
  4. Keep Your Spouse Out of the Business: It is best to keep business and family separate. If your spouse is involved in the business or business operations, they can make the argument during a divorce that they earned a portion of the business. 
  5. Pay Yourself a Fair Salary: Pay yourself a fair salary for the current market and your position in the company. Taking a salary that is less than what would be expected can lead to your spouse claiming that your actions affected the quality of the family’s home life. It could leave your spouse with a legally valid argument for future profits as compensation. 

If you would like to discuss the benefits of a prenuptial agreement or if you have questions about other methods of protecting your business from divorce, please get in touch with one of the experienced family law attorneys at The Maggio Law Firm today.



Orange County divorce lawyers; The Maggio Law Firm

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