As a business owner, you may have taken steps to protect your company from theft, security breaches, competitor threats and downturns in the market. But have you considered measures for protecting your business in the event of a divorce?
With an estimated 40 to 50 percent of first marriages ending in divorce, and with even higher rates existing for subsequent marriages, the potential for a dissolution is real and the possible impact on your business should not be ignored. In Washington, a community property state, a couple’s assets are divided equally in a divorce. Since your ownership stake in your business may be considered community property, your spouse could be entitled to as much as 50 percent of your share in the business. That raises the possibility that the business or part of its assets would have to be sold in order to carry out the division of property in the divorce, or that your ex may become an unwelcome business partner.
The key to preventing divorce from having an untoward impact on your business is to take steps to define your ownership stake as separate property, not marital property. Such steps may include:
- Creating a prenuptial agreement — It is highly advisable for couples to create a prenuptial agreement when there are substantial assets owned by either spouse. In such an agreement, you could define your business as separate property that is thus not subject to division during divorce proceedings. A prenup can also address issues like how a company may be valued and how its assets may be divided in the event of divorce.
- Keeping your business and family finances separate — Comingling business and family finances creates complications that can be difficult to untangle during a divorce. In addition to maintaining separate records and accounts, make sure the sources of capital for your business are well documented.
- Paying yourself a fair salary — By compensating yourself according to the value of your services to the company, you avoid the inference that you have built up “sweat equity” in which your spouse is entitled to a share. In contrast, if you pay yourself an income that is lower than the market standard, your spouse could assert that the full market salary should be imputed when determining child support.
Advance preparation is essential to protecting your business from being torn apart during a divorce settlement. However, if you have failed to take adequate precautions, you still have options. For example, you may be able to retain full ownership of your business by giving your spouse other assets, such as retirement accounts or the family home.
If you are a Washington business owner concerned about the impact your divorce could have on your company, get in touch with the family law attorneys at Bottimore & Associates, P.L.L.C. in Tacoma. We can develop effective strategies for protecting your interests and keeping your business intact. To schedule a consultation, call us at 253-272-5653 or contact us online.