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Protecting a business in a divorce

Divorce can be challenging as spouses deal with the emotional and financial details involved in dissolving the marriage. Because Texas is a community property state, marital assets are generally split equally between both parties. This can create challenges if either spouse has their own business, and failure to prepare for the possibility of divorce could expose the owner to possible difficulties as the asset is considered during the property division phase of the proceedings.

Several strategies can be implemented both before and during the marriage to safeguard a business in the event of a subsequent high asset divorce. If the business was in operation prior to the marriage, it might be viewed as separate property. However, a business owner who includes a spouse as an integral part of operations may not be able to maintain that separateness due to those contributions. A prenuptial agreement could be used to designate an existing business as separate. An agreement made during the marriage could also be used as long as it is entered into well in advance of a divorce.

A buy-sell agreement may be created to define steps to be taken if an owner has a change in status. This might set limitations on a party's ability to vote or acquire ownership. A trust might be used to protect the business and its future growth value because the asset is no longer owned by the person but by the trust. Maintaining a life insurance policy can also be helpful, providing a source of funds to buy out another party's share of the business.

In preparing to file for divorce, an individual who owns a business might review current company finances and structure with a lawyer. This may provide the opportunity for the owner to take steps in protecting the company before initiating divorce proceedings.

Source: Entrepreneur , "How to Divorce-Proof Your Company", Carol Tice, August 08, 2011

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