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How can I protect my small business during divorce?

If you have started and now run your own business, you are fully aware of the kind of investment required to build something from the ground up. The investment isn't just financial. Most business owners put their hearts and souls into their work - not to mention blood, sweat and tears.

For all these reasons and more, you need to protect your investment. Sadly, many business owners are surprised to learn that, unless careful arrangements have been made, their business may be considered marital property in divorce, and therefore, subject to division. In today's post, we'll discuss some ways to prevent this.

If you run the business with your spouse, divorce may require dissolution of the business or a buyout agreement of some sort. Most divorced couples would not be able to maintain a business relationship. One spouse may offer to buy out the other's share, but this only works if both spouses are willing to negotiate.

Perhaps the more frustrating scenario is when you own and operate the business yourself, but it is nonetheless subject to division in divorce. A judge may decide that the business is marital property if business finances have become intermingled with the couple's personal finances, or if the non-owner spouse helped increase the value of the business in some material way.

Some careful planning can reduce the risk that, if divorce becomes necessary, the business will be considered marital property. The first thing you can do is ask your significant other to sign a prenuptial or postnuptial agreement. The agreement (which should be written with the help of an attorney) would stipulate that the business should remain separate property belonging solely to one spouse.

Regardless of whether or not a prenup/postnup is in place, it is also important to maintain clear separation between personal and business finances. If you minimize your spouse's involvement with the business and keep clear records of finances, it will be easier to demonstrate that the business is indeed separate property.

Property division is often complicated even under straightforward circumstances. But it can be especially tricky for divorces involving ownership of a small business. If you are facing such a situation, you may find it helpful to contact a family law firm with additional experience in business and commercial law.

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Cooper, Tanis & Armas, P.C.
42 Garden Center
Broomfield, CO 80020