How to Protect Your Business When Your Partner Is Going Through a Divorce

With 40 to 50 percent of American couples divorcing, your business partnership may outlast your marital one. Even if your marriage is on solid ground, can you be certain your business partner will stay married? If not, you may be concerned about a divorce

That concern is justified. If your partner goes through a marital breakup, you can count on your business coming up during divorce proceedings. It is, after all, an asset. When attorneys begin gathering information, they’ll list your partner’s business interests among those assets, and the law will step in. No matter what the outcome, your business will at least in some way be impacted by your partner’s uncoupling. Here are a few things you can do to protect your own interests.

Understand the Dangers

In a divorce, the court is most interested in assets that contributed money to the household. Whether your partner owned the business before or after the marriage took place is irrelevant unless there was a prenuptial agreement. If your business is a moneymaker, it could be a problem.

Set Up an LLC

If you and your partner are already married, this won’t be much help. However, if you enter the partnership with one of you single, setting up your business as an LLC may offer protection in some states. With an LLC, some of the business’s assets are given protection under the LLC, rather than having them comingle with personal assets, as they do in sole proprietorships or partnerships.

Use “Buy Sell” Provisions

Along with the partnership paperwork you sign when you formed your company, you could include a Buy Sell Agreement that outlines what happens if one partner chooses to leave the business. This agreement can define what happens if either partner divorces and the ex-spouse gains ownership interest in the company.

Work with the Agreement

If part of your business is awarded to your partner’s spouse, you still have options. You’ll most likely want to buy out the ex-spouse’s interest to retain your own ownership. Chances are, the ex-spouse won’t want to deal with it, either. During the divorce proceedings, your partner also has the option of offering other assets to equal the value the other party is being awarded.

A few preventive steps early in your business partnership may reduce the risk of a divorce harming your business. However, it’s also important to find a partner who can weather life’s ups and downs while still giving your business the full attention it deserves.

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