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How To Protect Your Business Before Your Divorce

Continued from How to Protect Your Business Before Your Divorce

Here are 5 ways by which an experienced family lawyer can help you protect your business before your divorce.

1. Marriage Contracts. The best way of protecting your business from a divorce is to start even before you get married, with a marriage contract. The possibilities are limited only by what the parties are willing to agree to. For instance, you can enter a marriage contract that excludes the interest in your business from your net family property, prevents your spouse from making a claim against your business for an equalization payment, and from obtaining financial information about your business. Of course, to make the marriage contract fair, your spouse will need to receive other benefits. This is necessary, as a court may find an unfair marriage contract invalid and refuse to follow its terms.  A marriage contract is useful not only for the possibility of divorce, but also for estate planning as well.

2. Shareholder (or Partnership) Agreements. An agreement between the shareholders or partners of a business can be used to prevent a spouse from gaining an interest in a family business on divorce. It may also save you from obtaining a costly valuation of your business or disclosing financial information about your business to your spouse. For instance, in one typical shareholders agreement, the shares in the business could only be transferred to one of the three founding shareholders. This meant that if any of them got divorced, it would be difficult for their spouses to gain shares in the company. As well, on the divorce of any shareholder, the other shareholders had the option to buy the divorcing shareholder’s shares at a predetermined price. This was further protection for the company, for it set a method of valuing the shares and possibly prevented disclosure of the company’s financial information.

3. Net Family Property Freeze. A net family property freeze works exactly as it sounds. You freeze the value of your shareholding in your company at what it is today. Thus, on divorce, you are not required to pay your spouse half of the increase in the value of the company from the date of the freeze, which over time, can become a substantial amount.

4. Purchasing Shares with Excluded Property. Any property that can be traced back to excluded property is excluded property. By purchasing shares of a business, especially a start-up business, with excluded property, the value of the shares can remain excluded from your net family property.

5. Options. This works in similar manner to a shareholder or partnership agreement, except that the option to purchase shares is given to someone without an ownership interest in the business, for instance, your children.