Strategies for Protecting Your Business In the Event of a Pennsylvania Divorce

Want to talk about a terrible divorce outcome? Losing the company you built from the ground up. You end up an unwilling business partner with your former marriage partner. Your entire company could collapse, too.

Sometimes the business is even the cause for the divorce.

If you’re just starting your business or just entering into a marriage you’re in luck, because you have the opportunity to take some preventative steps now. If you’re already facing a divorce you may still have some options.

Don’t assume divorce can’t happen to you.

Statistically first marriages have a 50/50 chance of failing. Second and third marriages fare even worse. Due diligence would suggest you plan for the possibility of divorce even before you tie the knot.

Nobody wants a divorce. Nobody should go into a marriage expecting one. But they do happen, and as a business owner you’ve got more at stake than most.

Sign a prenup.

Prenuptial agreements are wise for most people, but they’re absolutely vital for business owners. A prenup can protect your entire interest in the business, ensuring your spouse won’t be able to touch that asset so long as the prenup holds up in court.

Don’t fall prey to the idea that prenups are predictors of divorce. They aren’t. In fact, signing a prenup is starting to become the norm.

See also: 7 Things You Should Know About Prenuptial Agreements.

Treat the business as a separate entity from Day 1.

Open a separate business account. File all the proper paperwork. Pay yourself a salary. Don’t use business funds for personal expenses.

In fact, you might even want to choose a business structure which turns the business into its own entity. Then, think about putting buy-sell agreements into place which outline what must happen in the event of a partner’s divorce.

All of these steps can keep your business from being designated as marital property.

Don’t hire your spouse.

The moment you hire your spouse you’ve shot yourself in the foot by making him or her “involved in the business.” Business involvement, even for a salaried position, gives your spouse a stronger case for walking away with a portion of that business.

Besides, involving your spouse in the business can damage both the business and your relationship, making divorce all the more likely.

Give up other things first.

If your business is going strong it’s one of the only assets you have that can experience a rapid growth in value over the coming years. Even your investment accounts are capped out by common interest rates.

Giving up other marital property to keep the business may therefore be one of the strongest moves you could possibly make. And if you’ve kept the spouse from working in your business or becoming personally invested in it, this may be an easy choice for him or her to make.

Just make sure you get a third-party business valuation before you start giving up the farm. Your business may be worth less than you think it is.

See also: This Divorce Strategy Will Improve Your Position.

Offer a buyout.

If your spouse is dead set on walking away with some of the benefits of the business you built while you were married, or already has a share in the business that’s difficult to dispute, then offering a buyout may be the way to go. It’s better than ending the business by selling it and splitting the profits 50/50, as this will allow the business to survive.

You have to have the funds, of course, but many spouses are more than happy to walk away with a lump sum of cash.

See also: How Are Divorce Settlements Calculated in Pennsylvania?

Hire the right divorce attorney.

DIY divorce is never a good idea, but it’s an even worse idea when your business is on the line. You need a trustworthy attorney who will give you the best possible advice and help you navigate the complex issues that can arise for divorcing business owners.

See also: 4 Questions to Ask Yourself Before You Try to Handle Your Own Divorce.

Contact us today to start the process.


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