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Protecting your business before marriage or before a divorce

Do you own a business here in Salem? Have you decided to get married? If you answer yes to both of these questions, you may want to take steps to protect your business in case you find yourself facing a divorce at some point in the future.

Even though you don't expect to divorce, you still need to take steps to protect your business. You wouldn't avoid purchasing insurance to protect it because you don't expect anything to happen, so why would you not take steps to obtain certain assurances in the (hopefully) unlikely event of a divorce.

Do you want a written agreement?

A prenuptial agreement sets forth, in writing, what will happen to your business if you and your future spouse divorce. For instance, you can make the following specific provisions relating to your business in the agreement:

  • You own the business as separate property. Therefore, it does not become part of the marital estate and is not subject to property division.
  • If you own the business together and each of you owns half of it, you can outline whether to sell it, continue operating it together, or buy out one or the other of you. 
  • Acknowledge that any increase in the value of the business during the marriage is subject to division, but the spouse not directly participating in or having an ownership interest in the business will receive a lower percentage of it upon divorce.
  • Determine whether another asset will compensate for the non-owning spouse's marital share in the business.
  • Specify that the non-owning spouse does not have a right to an ownership interest in the business in the event of a divorce.

Putting these provisions in writing could also put the minds of any business partners you may have at ease as well.

Do you not want a written agreement?

If you don't see the need for a prenuptial agreement, then you may still want to take the following steps to help preserve your separate ownership of the business in the event of a divorce:

  • The business' organizational document should clearly indicate that you are the owner of the business, not your future spouse.
  • Make sure you separate your personal accounts from your business accounts. Any commingling could erase all or part of the presumption that the business does not belong in the marital estate.
  • Keep good records regarding the money used for the business to dispel any contention for the use of marital funds, or even premarital funds.
  • Clearly document any cash transactions.
  • Pay yourself a salary that meets with current market standards. If you take a lower salary, your spouse could assert that the remainder of the market standard is marital property.
  • If your spouse works at the business, pay him or her in accordance with market standards as well in order to avoid the appearance that the business is a marital asset.

Taking these steps in the absence of a prenuptial agreement helps to maintain the business as your separate property.

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