A well-drafted prenuptial agreement can supersede the community property laws that govern divorces in California, making it a powerful tool to protect your business. To make sure such an agreement holds up in court, the best strategy is often for both parties to have their own legal counsel when preparing and signing the prenup.
Steps to take to protect your business
Your most valuable asset might be your business; however, you may have been putting it at risk for years. Here are some precautionary steps that may prevent a situation in which your ex ends up owning half of your business in the event of a divorce:
- Operating agreements — You can lock out your spouse from having any future rights to your business by establishing a partnership, LLC, shareholder and/or buy-sell agreements to divorce-proof your business. Provisions can be included to protect other shareholders in the event of one of them filing for divorce. A business contract can require that any unmarried partner must establish a prenup that includes a waiver of future interests in the firm by the partner’s spouse.
- Competitive salary — If you do not earn a reasonable salary but plow all profits into the business instead, your spouse may have a claim to a significant part of your business. This may be because he or she had to provide for the household since you invested all your money into the company.
- Keep your spouse out of it — Any involvement by your spouse can be grounds to claim a right to a portion of your business. Employing your spouse and allowing him or her to help with running your business may put some shares in jeopardy when your marital assets are divided as a result of your divorce. The more involvement you allow, the bigger the share that he or she may be able to claim.
What if you did not heed these precautions?
If you were unaware of the need to take these precautions from the start of your business, your spouse might now be claiming an ownership interest. If you do not intend to have your ex as a post-divorce business partner, here are some suggestions:
- Pay off your ex — Your share of the marital assets — other than the company — such as retirement funds, cash, real estate, stocks and more may be sufficient to pay off your spouse.
- Property Settlement Note – This option can represent a long-term obligation to pay your former spouse his or her stake in the company.
- Sell the business — Although this may be the last option, it might be the only one. If the company represents the majority of the marital assets, selling it and dividing the profit may be the only way to pay your ex his or her share.
You may be able to avoid all the trauma of losing half your business by securing the support and guidance of an experienced California divorce attorney. He or she can assist with establishing a watertight prenuptial agreement. If you need advice about potential threats to your business from the community property laws of the state, a skilled lawyer can assess the circumstances and suggest the remedies to allow you to make educated decisions about matters that will affect your post-divorce financial stability.