When a marriage comes to an end, it is not just the couples that go their separate ways. There is also a division of assets and liabilities, and even child custody and alimony issues to deal with. If you own a business, there’s the question of what happens to the investment.
If you are a business person who is on the verge of a divorce, you are probably wondering how you will protect your business from the potential division. After all, your business is an asset or investment and might be subject to division under the equitable distribution act. But if it’s any consolation, it is possible to protect your business during a divorce. The court classifies the property as either separate or marital; if your business falls under the separate category, you won’t have to divide it.
Here is how to protect your business
While the rules vary from state to state, generally, separate property consists of:
? An inheritance obtained by a single spouse only
? Property that’s owned before marriage
? A gift acquired by a single spouse from another person that’s not their spouse
? The pain and suffering part of a personal injury judgement
However, you should note that a property can lose its “separate” status if its entangled or mixed with the marital asset. The opposite is also true. For instance, if you include the name of your spouse as the co-owner in your business or if you deposit your inheritance money into a shared account, then the property may be termed as marital.
Any asset that you obtain while in the marriage is considered marital, irrespective of who bought the property or how it’s named. Examples of marital estate include, but not limited to deferred compensation, IRAs & other retirement plans, pension plans, restricted stocks & other equity, 401(k)s, closely-held business, CDs, savings, bank accounts, real estate, professional practices & licenses, boats, cars, tax refunds, antiques, art, limited partnerships and so on. In many states, if a separate asset appreciates throughout the marriage, the increase is also termed as a marital asset.
Drafting a pre- or postnuptial agreement is yet another incredible way of securing your business from the potential division of asset during a divorce. A prenuptial agreement is a contract that both you and your spouse sign before getting married that states the property rights and expectations in case of a divorce. If well-drafted, the prenup can ‘override both Equitable Distribution and Marital Asset state laws and the courts often respect such contracts.
Since these agreements are tricky, it’s in your best interest to work with an experienced lawyer, like those from Modern Law, to ensure the draft is strong. If you do not have a prenup, the next best thing to do is get a postnup, which a lawyer can also help you with. Note that a postnuptial isn’t as ironclad as a prenuptial, and you may never be sure of what the court may decide if your spouse doesn’t consent to what the postnup stipulates.