How Can I Protect My Business During a Divorce?

Posted in Divorce on July 2, 2018

A divorce brings several considerations and points of contention for couples, such as division of assets and child custody arrangements. Couples may face additional complications when one spouse owns a business, or both parties own an enterprise jointly. If you’re a business owner facing divorce in Colorado, it’s essential to take certain steps to protect your business. Observe these tips to protect your investment and always consult a Fort Collins divorce attorney during a divorce to best protect your assets.

1. Arrange for a Prenuptial or Postnuptial Agreement

A prenuptial agreement is one of the simplest ways to protect your business before you enter into a marriage. The terms of a prenuptial agreement are enforceable, so you can effectively insulate your business from any asset division, should you file for divorce later. If you’re already married, a postnuptial agreement may be another viable option. Using either of these agreements will allow you to designate your business as separate property, which means your spouse won’t have access it to it in the event of a divorce.

Prenuptial and postnuptial agreements can have a bad reputation, because some people view them as “planning for divorce.” However, this is not the case. By taking care of important financial matters before you marry, you can eliminate some of the financial factors that put stress on a marriage in the first place. Having a prenuptial or postnuptial agreement provides an important source of insulation for business owners.

2. Put Your Business in a Trust

If you do not have a prenuptial or postnuptial agreement, consider putting your business in a trust. It serves the same essential function as the former, effectively turning your business into a separate asset. Should you ever face a divorce, your business will not be a marital asset subject to the Colorado laws of property division.

3. Maintain Full Control of Your Business Whenever Possible

When a divorce sneaks up on you or is otherwise unplanned, you stand to lose a portion of your business if you don’t know how to react. If maintaining 100% ownership of your business is a top priority, you may have to make sacrifices in order to achieve it. This means you may have to provide your spouse with other assets, such as the houses, cars, or other joint assets in order to maintain a 100% share.

Mediation can prove to be an effective method of dispute resolution when your spouse does not want to relinquish control of a business. With the help of both your attorneys and a neutral third party you can reach an agreement that will appeal to both of you – or at least, something you can live with, in exchange for full control of your business.

4. Avoid Litigation Whenever Possible

If dividing the business still proves to be a source of contention, take whatever steps are necessary to avoid taking the matter to court. Even if you started a business before you got married, the asset could become marital property if it experienced “commingling” – in other words, if your joint assets went into the business itself. If the courts discover any evidence of commingling, it will likely declare your business a joint asset and it will be subject to equitable and fair division. For this reason, it’s best to work these things out through other means, increasing the likelihood of keeping a 100% share of your business.

Maintaining full ownership of your business can be difficult, especially if joint assets went into the enterprise. On the other hand, if you plan ahead or you’re willing to make sacrifices, you can effectively insulate your business from your divorce proceeding. Prenuptial or postnuptial agreements are the best line of defense, but otherwise consider alternative dispute resolution methods like mediation.

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