Protecting your business in divorce

With nearly half of all marriages ending up in divorce at some point, many people face the complications that arise from decisions over the division of marital property. For the Colorado business owner, this can cause headaches that they must either anticipate or address in order to protect the business.

There is always the potential for business affairs to end up in court during divorce. A business is often the most valuable asset in a household, and whether one spouse is the owner, majority shareholder or partner, there is the potential for disruption or loss in how divorce affects business during a courtroom battle.

The divorce proceeding

As Colorado is an equitable division state, the court will determine the equitable, not equal, division of marital property by factoring in future income sources, relative wealth and, where there are children, the custodial needs of each spouse.

Complications for the business owner can come up in the settlement if, for example, the business owner’s stock in the company is transferred to the ex-spouse, making them a shareholder or partner in the business. If the ex-spouse had a position in the company and remains, business affairs can get uncomfortable. If the ex-spouse decides to leave unexpectedly and sell their stock, it can destabilize the business.

Options for keeping the business afloat

If the business is on the chopping block, selling it is the most drastic option, but one that may release the business owner from an impossible situation. Another option may be to sell their stock to other partners with a buy-back option in order to save the business from future dissolution.

Other possibilities include offering the other spouse an asset of equal value, such as the family home, in exchange for their shares in the business. If the trade-off still isn’t satisfactory, the business owner can offer to make payment over time in order to save the business interest.

Being proactive

Business owners need to always look ahead in order to nurture, grow and preserve the business. This may mean creating a pre- or postnuptial agreement at the beginning of a marriage that spells out the relationship of the business to the marriage, who owns it and what, if any, appreciation will be passed on in a divorce.

Other options include putting the busines into a trust, taking out an insurance policy on it, or keeping marital assets separate. These and other tips are important to think about to keep the business afloat in case the marriage goes sour.