Orange County Divorce: Tips on How to Divorce-Proof Your Business?

Most people don’t plan on divorcing, yet it may come as no surprise when it happens, especially as statistics show that roughly 50% of marriages in the United States end in divorce. This period of time can take a significant toll on your well-being while impacting everything around you, including your daily life, your family orientation, and even your business ownership. For most business owners, their business is usually considered one of their most valuable assets, primarily because of the number of resources and hours they have invested in it. As their business takes so much from them, most business owners number one goal is to protect this vital asset. That is why it often comes as a shock to many of them how unprepared they and their business are in the unfortunate event of a divorce. In this blog, we will cover ways how you can protect your business and tips that you can take if you are going through a divorce  

Secure the Business Before You Say “I Do” 

Starting a business is an immense undertaking. Getting everything up and running can cost you thousands of dollars, unlimited hours, and a lot of stress.  That is why, ideally, you want to take specific protective measures to protect your company before you get married. If you wait until a divorce happens, and your business is not protected, then it will most likely be up for negotiation during the divorce settlement.  No matter how awkward it may be, discussing your business, interests, and investments before the “big day” can protect your assets in the long run.

• Raise the Topic: Before you tie the knot, it’s a good idea to discuss your business with your fiance or girlfriend. Specifically, what would happen in the event of a divorce? Getting these discussions going ahead of time and taking appropriate measures can ultimately help you save a lot of money and time, as well as protecting your company if your marriage does not work out.
• Maintain Good Records: Keeping track of all the funds going into your business while making sure to keep your family’s finances separate will be critical if a divorce ever happens. Especially when the court looks into how much of the family’s funds went into the business. 
• Prenup Agreements: A prenuptial agreement is a contract that is signed by each party before their wedding. The deal is binding, and it outlines what will happen to the assets, businesses, property, and other income in the event of a separation, death, or divorce. It’s the easiest and least expensive way to protect your business in the circumstances of a divorce. A prenup is especially advised if you and your soon-to-be spouse are working together in the business or have individual companies. 

How to Protect the Business During the Marriage

Sometimes individuals don’t realize how prosperous their business actually is. It may not be until they are married that they fully understand it’s full potential and worth. As a result, some business owners don’t even start thinking about taking appropriate action to protect their business until they are already married. However, just because you are married doesn’t mean you can’t take steps to protect your assets. Even though it may be slightly more complicated than taking precautions before the marriage, it is not impossible, and the following suggestions are an excellent place to start. 

• Limit Your Spouse’s Role: It may be a good idea to fire your spouse from your business or try to limit their role as much and as early as possible. The more prominent the position they hold, the stronger the case your ex will have against you, claiming that they helped build your enterprise and should share the profits from its growth. 
• Pay Yourself a Salary: If you are not paying yourself a salary, but instead you are putting all the money back into the business, your ex may claim that you did not help contribute to the household. As a result, your ex can be entitled to more of the company’s assets. That’s why to protect your business, don’t starve your family’s cash flow, start paying yourself a competitive salary now. 
• Postnuptial Agreements: If you didn’t get a prenup agreement, you might still obtain a postnuptial agreement, which is a legal tool in California. As these agreements come after marriage, they are not viewed as strongly as a prenup. However, they are still an excellent way to protect your property. Once married, a couple can create a postnuptial agreement to outline what will happen to their income, debts, property, businesses, and other assets in the event of a divorce. The postnuptial agreement can also specify what amount of money your spouse is entitled to, or what portion of assets they can claim before a specific date. This can be essential in helping you protect your future business assets.

When Divorce Happens

In the event that you did not take any measures to protect your business, it is essential that you understand what may result in the event of a divorce. California is a community property state, meaning that the law presumes that all the property acquired during the marriage is therefore owned by both spouses equally. As a result, the court can divide the marital estate evenly, with the length of the marriage not affecting the division. This can be a hard pill to swallow for business owners when it applies to their business. However, there are some steps you can take to protect your business during divorce proceedings. 

• Give Up Other Assets: If you and your spouse are willing to negotiate, try to give up other assets like the family home, vehicles, or other assets for 100% retention of your business. 
• Pay Over Time: It is not uncommon to set up a payment plan with your ex-spouse, where you pay them a share of the business over time. You can set up monthly payments that can come from the business’s cash flow, for example. 
• Hire an Attorney: No matter the relationship you have with your ex, each divorce is unique and can become complicated very fast. There are numerous factors in play, including the shape of your relationship, the investments you have, and the complex state laws that can make the divorce challenging to maneuver. Sometimes the best thing you can do for yourself and your business is to get professional legal advice from a lawyer. Not only will they help you navigate the legal proceedings, but they can also instruct you in the ways to protect your business. 

Divorce is a touchy subject that can be incredibly stressful for anyone. Even more so, for those individuals that are business owners who are trying to run their business at the same time as they are dealing with divorce negotiations and proceedings. If you are going through a divorce and would like to speak to a lawyer, don’t hesitate to contact Pedrick Law Group, APC. You don’t have to go through your divorce alone; I can help you through this process so that you can move forward with your life on the right foot. Give me a call at (818) 325-3934 to go over your case today!

Sources:

Three Options for a Private Business in a Divorce. (ND) By Justin T. Miller. American Bar Association. 

A Small Business Owner’s Guide to Divorce. (2017). NFIB.

How to Divorce-Proof Your Company. (2011). By Carol Tice. Entrepreneur. 

Marriage & divorce. (ND). American Psychological Association. 

What Is A Postnuptial Agreement in California? (2018). Attorney Referral Service. 

Community Property State. (2019). By Tim Parker. Investopedia.