Divorce and Your Business: Six Smart Steps to Protect What You’ve Built from Divorce in Connecticut
For most people, divorce can bring significant financial stress. But for entrepreneurs and business owners and divorce, the stakes are even higher. In some cases, a thriving company can be put at risk — or even lost — as a result of a divorce. To help safeguard your business in divorce, and the people who depend on it, we’ve outlined six proactive legal and financial steps you can take to protect your business in case of divorce. If your marriage stays strong, excellent. If it doesn’t, you’ll know you’ve done everything you can to protect your company, your partners, and your employees. And importantly, these steps can help ensure you never feel stuck in an unhappy marriage simply to protect your business.
Six Proactive Steps to Safeguard Your Business in a Divorce
- Create a Prenuptial Agreement Before You Marry
Before tying the knot, work with an attorney to draft a prenuptial agreement that clearly defines your business as separate, nonmarital property. This legal document is one of the most powerful tools for ensuring your company remains in your hands. For business owners, this protection is key.
- Already Married? Consider Postnuptial Agreements and Other Legal Protections
If you’re already married, a postnuptial agreement can still provide essential protection. Business owners should also consider legal strategies such as buy-sell agreements, which outline how ownership interests can be transferred, and shareholder agreements, which can restrict voting or ownership rights for a founder’s ex-spouse. In some cases, placing business interests in a trust may be a smart move.
- Use Insurance as a Strategic Financial Tool
A life insurance policy with cash value can act as a financial cushion. In the event of divorce, it can be liquidated to buy out your spouse’s share — without needing to sell or destabilize your business. If you never need it for that purpose, the funds remain available for future use.
- Pay Yourself…. Fairly
Ensure you receive reasonable compensation for your work. Relying too heavily on marital assets to fund your business can give your spouse grounds to claim a greater share in a divorce. Paying yourself appropriately not only protects your business but may also ease financial strain in your marriage.
- Keep Personal and Business Finances Separate
Avoid commingling business and personal assets. This is essential for maintaining your business as separate property in the eyes of the law. It’s also good general business practice that helps protect your personal assets from liability and keeps your records clean — which your attorney (and accountant) will appreciate.
- Talk to Your Spouse About It Now
Bringing up divorce-related planning can be uncomfortable, especially in a happy marriage. But presenting it as a practical business decision — rather than a sign of distrust — can go a long way. You might explain that protecting the business helps safeguard the livelihoods of employees, preserve partnerships, and maintain investor confidence. If you have co-owners, mention that everyone is taking similar steps to reduce risk for their families and the company.
Bonus Tip: Legal Guidance Matters
Because business ownership adds a layer of complexity to divorce planning, it’s crucial to work with attorneys experienced in both family law and business law. At Freed Marcroft, we regularly assist entrepreneurs and professionals — including business owners — with customized strategies to protect their business interests.
Plan ahead. Protect your business. Preserve your peace of mind.
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Freed Marcroft’s attorneys guide select clients through the nuances involved in advance planning to avoid the negative consequences involved in entrepreneurial divorces, and, when necessary, represent business-owning clients in divorce.
To discuss our helping with your situation, contact us today either here or by phone.