Divorce tends to become complicated. If marriage is the process of combining two lives, divorce is the process of splitting them apart once again. The more assets and property there are to divide, the more complex things get. This is especially true for business owners.
Business owners face a number of unique challenges during the divorce process. We recently saw the very public and high stakes split between Amazon founder and CEO Jeff Bezos and his wife Mackenzie Bezos. Ultimately, the divorce settlement topped $36 billion. That’s billion with a B.
Most businesses aren’t on the level of Amazon. In reality, there are only a handful. Still, though your business may not be worth billions, it’s important. You poured your heart and energy into it and it represents your livelihood. You need to be aware of the specific hurdles you have to clear as a business owner during divorce and how to protect what you’ve built.
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3 Points Business Owners Should Consider
Because business owners face such specific challenges in divorce, there are a variety of things to take into account before and during a marriage. These aren’t all of them, not by a long shot, but three big considerations stand out. They are:
- How to protect your business before tying the knot
- How divorce impacts your business partners
- How to protect a business you start during a marriage
When you start a business, if you have business partners, and many other factors impact how this situation will play out.
Protecting Your Business Before You Marry
If you have a pre-existing business, the easiest and most common way to protect it in the case of divorce is with a prenuptial agreement. In the public perception, prenups often carry negative connotations.
People view them as betting on a relationship to fail or that you don’t trust the person you’re marrying. However, the reality is very different. They can be important tools to protect yourself and your what you’ve built.
In business, you strive for success. You hope for the best but also plan for the worst. The same goes for marriage. Prenuptial agreements are drafted with the hope they’ll never be needed. But having one in place can make a huge difference. Like a life vest on an airplane, hopefully you’ll never need it, but you’ll be glad it’s there if you do. Think of it as an insurance policy.
Divorce and Business Partners
Businesses are often expensive, intricate, and require a great deal of work. As such, they frequently involve multiple partners. Because of this, when one business partner divorces, it can impact all the stakeholders in the company. Any number of things can go wrong.
Divorce has the potential to expose the business to the scrutiny of outside assessors. Since your stake is an asset, likely one of your biggest, the courts can split it up during the division of property. You may even have to liquidate your share in order to meet other financial obligations in the divorce agreement.
When you have business partners, it’s not only your livelihood on the line, the livelihood of others also hangs in the balance. Protecting your business in the case of divorce also protects your partners.
Businesses Started During a Marriage
While you can use a prenuptial agreement to shield your business if it exists before your marriage, what can you do if you start a business afterward?
If you start a business while married, it will likely be considered marital property. This means it will probably be vulnerable to division in a divorce. Similar to other assets acquired during a marriage, the courts will view this as belonging to both spouses.
This unfortunately means you have limited options when it comes to protecting your business from divorce. That said, you’re not completely without ways to cover yourself.
Much like prenuptial agreements are often used to protect a business, it’s possible to create a postnuptial agreement. They function in similar ways and also serve as a safety measure in case of divorce in the future.
If your business venture is funded with capital from outside investors (like family, friends, or angel investors) having a postnuptial agreement can provide your investors peace of mind.
Like most legal matters, postnuptial agreements can be complicated. It’s likely in your best interest to talk to an attorney. But while it may take effort and hard work, helping shield your business and ensure your financial future is vital.
You may not have started Amazon, but you still invested time and money and you sacrificed to build your business into a valuable asset worth protecting.
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