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Protecting Your Business in Divorce

If you’re a business owner, splitting up with your spouse can do more than just shrink your personal net worth. It could cause business assets to drop, as well. This could happen even if you owned your business going into marriage: unless you take action to reduce the exposure your business has to a possible divorce one day. Fortunately, the law offers you many ways to keep your interests safe. The first rule of getting there is to take action in a timely fashion.

Prenuptial or early postnuptial agreements

In Indiana, the Uniform Premarital Agreement Act governs how prenuptial agreements are treated. When you draft a prenuptial agreement with your family law attorney’s assistance, you can include details about the rights that each spouse has to the marital property. You are also able to deal with how such property is disposed of in the event of divorce, any agreed upon maintenance, the drafting of a will or other document to enforce, and so on. When you don’t have a prenup in place, the law starts with the assumption that all marital assets are split down the middle, including inheritances received. It doesn’t matter when the assets are acquired – before or during marriage.

A postnuptial agreement includes similar information about how assets are to be disposed of in the event of divorce, but is only drawn up after the wedding. Indiana law recognizes postnuptial agreements, when couples may be heading toward divorce to set out how assets are to be split, and how they hope agreed upon maintenance will be determined. A postnup can simplify contested divorces. When families have business interests to protect, a postnup could help make things more manageable.

Put a buy/sell agreement together

A buy/sell agreement is another legal approach to use to separate business assets in a divorce. Such an agreement functions as a contingency plan for the possible management of a situation in a future that involves the exit of one partner in a divorce. Since business holdings become marital assets at marriage even if one of the spouses involved had nothing to do with the business prior to the marriage, a prenup or postnup may not adequately protect the interests of the primary owner. It is important, then, to put a buy/sell agreement together after the business comes together. Such an agreement can also require the spouse obtaining an interest in the business by way of marriage, to sell their interest to their spouse at divorce, in return for fair compensation.

You can establish an irrevocable trust

As you work to divorce-proof your business, it’s a good idea, additionally, to set out an irrevocable trust to cover your business. When you create an irrevocable trust before you get married, it can help separate your business from your marital assets. It is the trust, and not you, that ownership of the business rests with. For this reason, the court isn’t able to apply a 50-50 split to the business in the event of a divorce. You could also create such a trust right after you get married. It isn’t a good idea to do it right before you file for divorce, however. It would signal to the court that you were trying to hide your assets from your spouse. It’s important to keep in mind, also, that when you set up such a trust, naming your spouse as the beneficiary would negate the point of the whole enterprise. It would be irrevocable, in addition. You would need to name someone else as a contingent beneficiary, in the event that your marriage breaks down.

Marriages, unfortunately, sometimes end in divorce. It’s important to plan ahead. A qualified family law attorney is able to advise you on how best to protect your business in your specific circumstance.