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Shielding a small business from the fallout of a divorce

This article looks at how to make sure a divorce does not lead to the sale or loss of a small business.

For many couples, the largest asset in their marital estate is their small business. Even if the business is only owned and operated by one spouse, it is usually considered the property of both spouses. As a result, the value of that business is often subject to division during a divorce. In far too many cases, that division can imperil the continued existence of the business, especially if one spouse doesn’t have the resources to buy out the other spouse’s share in the business. In such cases, the only option can feel like selling the business entirely and splitting the proceeds. However, there are other steps that can be taken to keep a business running after a divorce.

Get a prenuptial agreement

This solution won’t work for couples who are already getting divorced and don’t have a prenuptial agreement in place, but for those who have a business and are getting married then the value of a prenuptial agreement cannot be overstated. A prenuptial agreement allows couples to decide for themselves how a business will be handled in case of a divorce later on. Even if the business is not worth much today, a prenuptial agreement can protect the value that it may accrue in the future.

Property settlement note

As MarketWatch points out, even if one spouse does not have the money to buy out the other spouse today, he or she could still buy out the other spouse over time with a property settlement note. With a property settlement note, the spouse keeping the business pays back the ex-spouse for his or her share of the business over an extended period of time (and with interest) instead of offering a lump sum payment.

Remain business partners

This is certainly not an ideal solution for many people going through a divorce, but, as the Wall Street Journal reports, some do manage to make it work. The advantage of staying together as business partners if not as married spouses is that the business continues to function and issues such as dividing and valuing it (which can lead to further disputes) can be conveniently bypassed. On the downside, it isn’t always easy to keep the reasons why a marriage failed from infecting the work environment.

Get a loan

Finally, a business loan may be one of the simpler ways of ensuring that a business can keep going even after a divorce. The loan will allow the spouse who is keeping the business to buy out the other spouse. This option, however, isn’t always ideal, especially if the business already has considerable debt or is failing to make much of a profit.

Family law help

A family law attorney can help anybody who is going through a divorce understand how best to handle the legal challenges that they may soon face. Business owners, especially, should contact an attorney who has experience with business division during divorce so as to get the most informed and practical advice about how to protect their best interests.