By Mary Ellen Flynn, Esq., (301) 563-6685
Divorcing your spouse can get complicated, especially if one spouse owns or has a share in a business. Typically, the spouse who does not own the business was either directly involved with helping it grow or indirectly involved by making sacrifices to help support the business’s growth. In either event, your spouse may have a valid interest in your business, and certain strategies can be implemented to protect your business as much as possible.
Protect your business before tying the knot
Don’t wait to protect your business. The reality is, 40 to 50% of all marriages end in divorce. Although the hope is to have a happily-ever-after, your business interests are at stake if your marriage becomes another statistic.
Here are some steps you can take to protect your business before you get married.
- Sign a prenuptial agreement. This agreement can contain various binding provisions if you and your spouse end up getting a divorce. Stipulations of the prenuptial agreement can cover your spouse’s interest in your business. If you already own a business and then subsequently get married, a prenuptial agreement will ease anxieties and paint a clear picture of what will happen if you and your spouse divorce.
- Put protections in writing. Ensure the company’s operating agreement includes various provisions that protect the interests of all the business owners if either one of them gets divorced. Such provisions can include a requirement that unmarried shareholders provide a prenuptial agreement prior to getting married or the prohibition of the transfer of shares without other shareholders’ permission.
- Form a trust, corporation, or LLC. Creating a trust or forming one of these business entities before you get married may help protect certain business assets. However, you should do this before divorce proceedings and even before discussions regarding divorce take place. If you create a trust, LLC, or corporation at the onset of your divorce, you will appear dishonest, and it could be evidence against you in a court proceeding.
- Consult with an attorney. If you are contemplating marriage and own a business, consulting with an attorney will provide you with in-depth information about what could happen to your business if you get a divorce. Further, an attorney can provide you with other recommendations for protecting the business based on your unique personal and financial circumstances.
Protect your business in anticipation of a divorce
Suppose you took no steps to protect your business before your marriage or started your business during your marriage. In that case, there are still steps and strategies you can take to help protect your business if you or your spouse are contemplating a divorce.
- Obtain a neutral business valuation. A neutral business valuation is a fair valuation not conducted explicitly for either spouse’s benefit; it is a tool both spouses can use to resolve disagreements related to the business. Therefore, it can help resolve disputes regarding the business’s value and ultimately help reduce attorney’s fees because it helps facilitate settlement discussions.
- Transparent business records. Maintain clear and detailed business records and be sure to clearly separate business and personal expenses. Separating family finances from business finances will allow the court to view the business and your marriage as two separate financial entities.
- Pay yourself a market-rate salary. If you are not compensating yourself at the market rate, your company’s value will appear higher than it actually is. Therefore, a court could decide, and your spouse’s lawyer will argue, that your spouse is entitled to more of your company.
- Consider making other sacrifices. If you do not want to forfeit some of your business interests, consider other contingencies that could be attractive options to your spouse. For example, you could offer higher alimony payments or distribute business proceeds to your spouse over time. In a settlement agreement, you and your spouse can agree to creative solutions that protect your shares of the business. Having an attorney advise you of these creative solutions will help alleviate stress during the divorce process.
Whether you have a large, small, complicated, successful, or disorganized business, implementing the strategies above can help alleviate stress and disputes involving your business during a divorce.
Contact Mary Ellen Flynn at (301) 563-6685.
About Andalman & Flynn, P.C.: Founded in 1998 in downtown Silver Spring, Maryland, Andalman & Flynn has forged a distinguished reputation for legal excellence. The firm represents individuals seeking disability benefits throughout the country and practices family law throughout Maryland and the District of Columbia. The firm focuses on cases that impact the rights of everyone, and are there for clients when responsive legal help is most critical. The firm has provided legal analysis on national and local television and radio, and their attorneys often testify before legislative bodies and are routinely invited to contribute to prominent legal publications. For more information about Andalman & Flynn, please visit the website at https://andalmanflynn.com/ or call (301) 563-6685.