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Planning for divorce as a married entrepreneur

On Behalf of | Nov 5, 2019 | Property Division

Business owners tend to believe in the future. Somehow, there will be customers, suppliers, employees and capital long enough to sustain the business, at least until the owner (or their heirs) retire. Planning for a possible divorce may seem pessimistic, but it is just the kind of thinking ahead business owners do.

Businesses buy insurance, strategize for economic downturns, keep a good attorney on call and plan for personal struggles. Divorce, according to the data, is more likely than that earthquake many Pennsylvania businesses are insured against.

Contract options to divorce-proof a business

Protecting a business against divorce, like business itself, can mean starting with the right contracts and then using best practices, as outlined by a recent Forbes article.

Prenuptial agreements, or post-nuptial agreements created during the marriage, often have unexpected advantages. They may protect the business assets should a divorce ever be necessary, but they also may reduce conflict and the stresses that come with uncertainty.

Such contracts could include creative provisions, but should aim for clear precision on standard issues, often including the following;

  • Whether the business is separate property
  • How to divide the business’ growth in value made during the marriage, whether equally, equitably, or according to a formula based on sweat equity or other considerations
  • Which spouse expects to buy the other out or whether the couple expects to continue a business partnership after separation

Doing business without a contract

In most business operations, it is important to have and carefully follow well-considered best practices. The married entrepreneur could consider strategies like these:

  • Making documents that specify the sole owner and whether or not the business could be transferable in a divorce
  • Rigorously keeping separate business and personal expenses and documenting every cash transaction
  • Paying oneself and the spouse in ways that are strictly inconsistent with market standards.

Measures like these can be especially important when doing business without a post- or pre-nup.

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