Texas entrepreneurs & divorce: Can you protect your business?

The divorce rate in the United States continues to average forty to fifty percent for first time marriages and even higher for second or third marriages. Entrepreneurs who have built their own businesses have more than just a home or retirement assets at stake during a divorce. If the business owner does not handle the divorce wisely, it could cripple the business.

Proactive steps can help mitigate this risk. Some options include:

  • Prenuptial agreement. Ideally, the couple will agree to a prenuptial agreement before getting married. The couple can use this agreement to address how business interest are handled in the event of a divorce. This can help to reduce the impact of the divorce on business operations.
  • Postnuptial agreement. A postnuptial agreement offers an alternative for business owners unable to get a prenuptial agreement prior to the wedding. This type of contract may also provide an option for those who started the business during the marriage. The business owner can use the postnuptial agreement to achieve similar goals present with a prenuptial agreement.

Unfortunately, these agreements often come with a stigma. As a result, business owners may be hesitant to use these documents to protect their business interests. One strategy that can still provide benefits without a pre or post nuptial agreement is the use of a salary. Business owners are wise to pay themselves a competitive market salary. Those who put all of their earnings back into the business could set themselves up for an argument that none of the income went into the household - potentially strengthening the non-owning spouse's claim to the business.

What about business owners already going through a divorce?

Strategies that can help business owners who already find themselves navigating a divorce include:

  • Document. Ensure that it is clear who owns the business. Refrain from giving a spouse a position within the company unless you want to open it up to potential division in the future. Have records that show ownership and keep business finances separate from personal, marital accounts.
  • Negotiate. Business owners can consider sacrificing other assets in order to receive full ownership of the business. The non-business owner spouse may be more interested in real estate or another asset owned by the couple. Consider trading full ownership of another, comparable asset to retain control of the business.
  • Buy-sell agreement. Business owners can use a buy-sell agreement to require the owner offer partners shares in the business otherwise offered to a spouse during divorce. Although it may not protect your ownership, it can help shelter the business from the divorce.

These are just a few strategies that can help to better ensure the business is protected during a divorce. The right option will vary depending on the facts and circumstances of each divorce. As a result, it is wise to seek legal counsel to better ensure your interests are protected.