Indiana Divorcing Business Owners: What You Need to Know

If you are a business owner contemplating divorce, you have additional considerations that wouldn’t come into play for many facing a separation. 

It’s not an uncommon scenario, as many entrepreneurs toil long hours building the company, and the marriage can suffer. It’s typical of younger couples to marry with no prenuptial agreement. What starts as a $50,000 venture can expand to a $10 million enterprise by the time the marriage dissolves – and by that time, the spouse has a stake in the business growth.

Of course, every scenario is different, but preservation of the business is a top priority for many owners. 

Our divorce lawyers in Gary know one of the best ways is to prepare for this possibility far in advance. Few people get married thinking it’s not going to last, but protecting the firm’s interests should be considered when legally formalizing a relationship.

Some preventative measures you can take include:

  • Signing a prenuptial agreement. Business owners who had a company before they married should ensure the firm is designated as separate property.
  • Securing a postnuptial agreement. This is a financial agreement signed after the wedding. While many judges look at postnupital agreements with a critical eye, they are usually binding. It can help to define the business as separate property, and it’s good to have one in place years before a divorce is initiated.
  • Putting the business in a trust. If the entrepreneur no longer personally owns it, it can no longer be considered a marital asset. This also shields the value of the firm’s growth.
  • Establishing a buy-sell agreement. This agreement will spell out what will happen should one of the owner’s status change (as would be the situation in a divorce). It will help to minimize the spouse’s right to acquire any ownership of the company, or it might give the other partners the right to purchase interest awarded to the ex-spouse at a preset, low price.

But what if it’s too late for all that? Again, it will depend on your individual situation, but there are some effective strategies that work well for a broad base of business owners. These include:

  • Keep good records and make sure to separate the family finances from those of the business. The more entangled your personal assets are with your business assets, the tougher it’s going to be to argue the business isn’t a marital asset.
  • Pay yourself well. Some business owners will pay themselves less in the short term thinking they will eventually sell the company and use those proceeds for retirement. But if your spouse then becomes entitled to a share of the company, they’ll get more because you didn’t take out as much annually.
  • Remove your spouse from the business. If that means firing him or her, do so as early as possible, as this will weaken the claim that he or she helped build the company and should therefore be allowed to profit from its growth.
  • Obtain a fair valuation. Using a court-appointed, neutral professional to determine the value of the company before you agree to anything.

If you have additional questions or concerns about divorce and the impact on your business, contact us today.

Indiana Family Law Attorney Burton A. Padove handles divorce and child custody matters throughout northern Indiana, including Gary and Hammond. Call Toll Free 877-446-5294.

Additional Resources:

What to Know if You Own a Business and are Contemplating Divorce, Jan. 27, 2016, By Harvey Wallace, St. Louis BizTalk

More Blog Entries:

Divorcing Parents of Children With Disabilities Face Unique Challenges, Dec. 10, 2016, Gary Divorce Attorney Blog

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