Divorce brings several unique challenges for business owners. The dissolution of marriage can impact business assets or the fate of the business itself.
Planning well ahead can help protect the future of your company. Making key preparations can help minimize the effect of divorce on a business.
1. Determine the value of the business
Before filing for divorce, it is important to have an accurate understanding of the business’s value. Texas is a community property state, meaning that assets acquired during the marriage are subject to division. Even if you started the business before the marriage, its increased value during the marriage could be part of the marital estate. A professional valuation can give a clear picture of the business’s worth, which will be important when dividing assets.
2. Separate business and personal finances
Keeping business and personal finances separate can mitigate complications when a divorce is on the horizon. Commingling funds can blur the lines between personal and business assets, making it harder to protect the business during the divorce process. Make sure business accounts are distinct from personal ones, and avoid using business funds for personal expenses. Keeping clear financial records can demonstrate which assets belong to the business.
3. Review any existing agreements
If there are any agreements such as a prenuptial agreement, postnuptial agreement or partnership agreements, be sure to review them carefully. These documents may outline what happens to the business in case of a divorce. For example, a prenuptial agreement may have terms that protect the business from division. A partnership agreement might specify that a spouse does not automatically gain an interest in the business. Understanding these agreements can help guide the process and protect business assets.
With a divorce rate as high as 48%, entrepreneurs are more likely to separate from their spouses. If you are a business owner, making preparations to safeguard your business can reduce the risks that come with dividing marital property.
