The biggest downfall of many small businesses is something that married couples often aren’t properly prepared for: divorce. Divorce is stressful enough on its own, without having to worry about a shared business on top of it.
Therefore, couples who manage businesses should have a plan in place in case divorce ever occurs, and if you’re already going through this process and don’t know where to start, consider the tips below.
1. Seriously consider a pre-nuptial or post-nuptial agreement
If your business is already in the picture before you’re planning on getting married, investigate a pre-nuptial agreement. If you’re married already, consider a post-nuptial agreement to work out the details of what would happen to your business should you divorce. Consulting a lawyer and having this information clearly laid out in case of a separation is a smart safety net to have.
Written agreements signed by yourself, and spouse can help you both avoid unnecessary added struggles and ensure that each party has some secure financial protection in relation to your business should you decide to ever separate.
It may seem like an awkward or unneeded conversation to bring up (discussing divorce while you’re married is never comfortable or romantic), but it’s a wise move to make when nothing in the future is ever completely certain–and you don’t want your business to suffer because you didn’t draw up a proper plan that works for both of you.
2. Seek legal advice
When in doubt, seek legal advice. Even a free consultation with a family lawyer can help point you in the right direction with the steps you need to take to ensure the health of your business is maintained and prioritized while you’re going through the process of divorcing your partner.
3. Transfer business assets into a living trust
Another option to protect your small business during a divorce is to transfer your business assets into a living trust. Creating a living trust essentially places ownership of your business to a third-party trustee, while you can still maintain control and earn money from it. However, if your divorce your spouse, the business cannot be divided because you don’t own it. Always pursue legal assistance when considering a living trust to make sure the process is done correctly.
4. Location matters
The city or province where your business is located may have different regulations surrounding asset division during divorces than the region you file your divorce. Therefore, it’s important to understand how your business ownership, assets, and income would be interpreted by a judge in your area to properly protect it.
5. Understand the difference between separate and marital property
Another factor to consider in your marriage and in the event of a divorce, is the difference between separate and marital property. Although it varies depending on where you’re located, separate property is generally including property that is owned before marriage, inheritance received by one partner, or gifts received by one partner from a third party.
However, separate property like a small business that was owned before the married occurred, can easily become marital property if there is no strict management and careful protection in place before the wedding. When property is mixed–like a joint bank account for example–it will almost certainly become marital property.
The dissolution of a marriage is a challenging process. Emotions will be raw, and your personal life will be in turmoil so it’s necessary to have a secure plan in place that works for you and your partner when you share and own a small business. It’s far better to plan for a situation that may never happen than to struggle without a proper course of action when you’re forced to deal with it unprepared.