Protecting a company while going through a divorce

Business owners in Texas should consider how they will protect their company in case of divorce. Since Texas is a community property state, a business might be considered a shared marital access. A prenuptial agreement may be the best way to protect a business. Other ways to protect a business early on include writing a buy/sell agreement that specifies what happens in the event that an owner’s status changes as in a divorce. Putting the business in a trust may prevent it being treated as a marital asset. Other alternatives are a post-nuptial agreement or a whole-life insurance policy that can be cashed in to buy the spouse out if necessary.

As divorce draws closer, there may be other approaches. The spouse should be removed from the business if possible. Paying oneself a higher salary rather than reinvesting in the company may make the company seem like a less attractive asset. Ensuring that business finances are separate from family finances is also important.

Individuals should ensure that the company is accurately valued, and if the spouse does have a claim on it, there are ways to lessen the financial impact. Selling a stake can raise money to pay off the spouse, or an individual might choose to pay the spouse over time.

Individuals who must deal with property division as part of a divorce may wish to consult an attorney. For example, an individual may have run a business for 10 years before getting married. After three years, the marriage may have failed, and there may not have been a prenuptial agreement. The spouse might try to claim half of the business, but an attorney may be able to help with some of the above strategies to prevent that.

Source: Entrepreneur, “How to Divorce-Proof Your Company,” Carol Tice, Aug. 8, 2011