When you get married, you hardly think about what would happen if you get divorced. After all, you’re living in wedded bliss and are hoping for forever. Unfortunately, divorce is so prevalent that everyone quotes the statistic that half of the marriages in the U.S. end in divorce. Data from the Centers for Disease Control and Prevention show that the divorce rate has been dropping since 2000, where 4.0 divorces happen per 1,000 population. In 2018, this went down to 2.9 divorces per 1,000 people.
Nevertheless, divorce still happens to plenty of couples. And while it’s hard enough to navigate this process when it’s you and your spouse who are dividing your assets from marriage, it can be even more difficult if you’re an entrepreneur.
So, what happens to your business when “I do” turns to “I don’t?” We discuss the implications below.
Before “I Do”
What happens before marriage plays a huge part in how your divorce affects your business. For one, if you launched your business before you got married, it may be considered a premarital property. That generally means this asset is protected and will be yours after the divorce, with a few exceptions including:
- If you transfer a business interest to your spouse during the marriage
- If you expand your business during the marriage and you use funds from your marital estate for this expansion
- If you do not list your premarital property as a separate property in a prenuptial agreement
A prenuptial agreement is another crucial factor in determining what happens to your business after your divorce. If you have an airtight prenuptial agreement, one that assigns all your premarital and future business assets as separate properties, then your company is not likely to be divided with your spouse during the divorce.
Apart from prenuptial agreements and established premarital assets, your business may be protected if it’s placed in a trust or if you inherited it. Still, none of these are without exceptions. Talk with your divorce lawyer to learn more about how your spouse may get a part of your business.
During the Marriage
If you did not create a sign a prenuptial agreement before marriage, you have the option to do it after. That is called the postnuptial agreement. It is similar to a prenup in all ways except the time it is signed. So, you can keep your premarital assets safe, including your business, with a postnuptial agreement.
If, for example, your spouse fits into one of the exceptions above, your business might be considered marital property. Marital properties are assets you build and acquire during the marriage. As such, these assets will be divvied up between the two of you if you decided to file for divorce. Each state has different laws on how to divide these properties.
The good news is, most businesses aren’t divided after divorce when it’s been deemed a marital asset. Your spouse might settle for leaving their share of the company to you in exchange for your other assets equal to the value of their supposed share in the business.
When business is involved in a marriage, breaking up is indeed hard to do. However, if you prepare for possibilities beforehand, you can safeguard the business you’ve built no matter how your marriage will turn out.