Protecting Your Interest in a Business During Divorce

When one or both spouses own all or part of a private business, that ownership stake may be considered a marital asset that is subject to equitable distribution in a divorce. Often, one spouse is a founding owner of a business that may predate the marriage. In some cases, a non-owner spouse contributes capital for the business and/or adds value by working for the company. These and a myriad of other factors can affect whether each divorcing spouse is entitled to a share of the business. Fortunately, there are several ways in which a business owner can protect both the company and his or her individual interests in case the marriage dissolves.

Prenuptial Agreement

One of the most effective ways to protect a pre-marital business is through a prenuptial agreement, which can specify each party’s interest in the company if the marriage ends in divorce. In addition, a prenuptial agreement can give a spouse credit for contributions of capital or labor during the marriage. If the spouses co-founded or co-owned the business, the prenuptial agreement can specify how the asset will be divided. Business agreements between spouses can include provisions for one spouse to buy out the other’s interest or for selling the company in the event of divorce.

Business Structure

A good method of asset protection is to structure the business as an independent legal entity, such as a corporation or a limited liability company (LLC). A shareholder or operating agreement can limit or preclude transfer of ownership interest. It also can specify how spouses who are co-owners or who contribute value will be treated in the event of a divorce. Although the non-owner spouse may still have a valid claim for a share of the business, a carefully drawn partnership or operating agreement can avoid substantially interfering with the continued operation of the business.

Independent Operation

A third way to protect a business is to ensure that all operations are run independently from the owners’ personal affairs. A non-owner spouse may make the claim that assets properly belonging to the couple were hidden in the business. For example, some business owners will leave an excessive amount of capital in the company by taking very little in salary. An owner can legitimately protect the business from spousal claims by engaging in “arm’s length” transactions with his or her spouse. If the non-owner spouse makes a capital investment, they should get a market rate of return. If the non-owner spouse loans the company money, they should be paid the prevailing interest rate and the loan should be repaid on time. If the non-owner spouse works at the business, they should be paid market-rate wages.

The Law Offices of Lawrence S. Katz, P.A. is one of Miami’s most notable complex international litigation family law firms. Attorney Katz has the skills and experience required to attain the best outcome in complicated and high-net-worth divorce matters. Feel free to contact us online or call 305-670-8656 for an initial consultation.