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Keeping the business out of divorce

by | Aug 4, 2021 | Asset Division

It is a sad reality that almost half of all marriages end in divorce in the United States. For the spouse who runs a business or is a majority shareholder, a divorce proceeding can spell trouble if the business is drawn into the divorce settlement. Business owners who have proactively taken steps to keep the company separate during the marriage will not face the negative impact that property division could have on it.

Equitable division in North Carolina

In a divorce proceeding in North Carolina, the court is guided by the theory of the equitable division of marital property. Marital property includes assets and debt acquired during the marriage, such as the family home, bank accounts, stocks and bonds, and commingled property.

A judge will determine the fair, but not necessarily equal, division of property based on a number of factors including the relative incomes, debt and property of both parties, length of marriage, tax implications and the contributions of each to the earning power of the other. Some of these contributions can be nonfinancial, such as one spouse’s efforts to maintain the household, raise children or support the other spouse professionally. These factors can also influence the judge’s decision.

Protective measures for the business

There are pragmatic measures that the savvy business owner can take in order to avoid messy entanglements later on. A prenuptial agreement, if comprehensive enough, will separate from the marital property not only current but also future assets related to the business. Such an agreement can also spell out the role the other spouse may play in the enterprise, including their percentage of future earnings. A postnuptial, drawn up after the wedding, can formalize similar concerns.

Other ways that a business owner can protect the assets related to the business include taking a competitive salary rather than foregoing it, so as to circumvent accusations later on that the spouse did not contribute to the household income during the marriage.

The particular shareholder, partnership, LLC or buy/sell agreements of the company can include provisions with a requirement that married shareholders have a prenup preventing their future spouse from holding a future interest in the business. Or, such agreements may include a provision allowing shareholders to purchase the business interest of the divorcing spouse.

Because the laws surrounding property division are complex and the court decides each case on the merits presented by each side, having a skilled family law attorney to represent you can strongly influence the judge’s final ruling.