When a couple divorces here in New York, their property is subject to equitable distribution, which means all marital assets are divided fairly between them. Sometimes, marital assets include a business that the couple started together, or that one spouse started before the marriage and continued to grow during the relationship.
Many of our clients ask how to “divorce-proof” their business. With the amount of blood, sweat, and tears business owners put into developing a company, their concern – as well as the concern of any shareholders they may have – is understandable. Business owners can take a number of steps to keep their business safe during any upheaval in their lives, both before and after getting married.
Four ways to protect a business before or during your marriage
The most effective time to take steps to protect your company from divorce-related issues is before you marry, or as early as possible in your marriage. Planning ahead is the best way to ensure security for a business. In fact, business owners are a group that likely benefit the most from having a prenuptial agreement. Consider these business protection strategies as part of your wedding planning (even if it does not “feel” that romantic):
- Sign a prenuptial agreement designating your business as separate property as well as any appreciation or increased value of your business.
- If you do not sign a prenup, consider signing a postnuptial agreement soon after marriage.
- With an LLC, corporation, or partnership, you can create a buy-sale, operating, partnership, or shareholder agreement with a provision in place stating what happens to the business in the event any owner divorces. Note, though, that while this may provide some security to partners in a business, it has no effect on the division of a divorcing partner’s interest.
- Ensure finances from the business are kept separate from marital finances.
One key thing to understand is that even if a non-titled spouse is not involved in a business at all, a court is still likely to determine that the non-titled spouse should receive some portion of the value of that business. This is because courts look at marriage as a financial partnership. If one spouse is staying home, raising kids, and providing support to the spouse who owns and operates a business, this is sufficient for courts to find that the spouse who stayed home should share, to an extent, in the business’s success.
Protect your business during your divorce
If you went into your marriage without any protections set in place regarding your business, you still have choices, strategies, and options, even in the divorce process. For example, your spouse may attempt to inflate his or her contributions to a business, or obtain an appraisal that overvalues the business, in the hopes of securing a larger buyout. Good divorce lawyers can counter this.
Skilled representation, strong negotiation, and deft financial planning can help avoid either excessive payouts to spouses, or restructuring of a business. An experienced NYC family law attorney can help you determine the best decisions for your particular situation.
With the right legal team, many business owners are able to walk away from their divorces with their livelihoods intact and their life’s work secure and whole.
If you have questions or concerns about prenuptial agreements or your business and divorce, contact the New York matrimonial law attorneys of Berkman Bottger Newman & Schein LLP. Please call us at (212) 466-6015, or reach out to us through our contact form today. We maintain offices on 5th Avenue in Manhattan, in Westchester, and in Bergen County, NJ.