A Singular Focus On Family Law Matters

How can business owners protect themselves in a divorce?

February 24, 2020 | Firm News

Divorce is generally very stressful, but for people in unique financial circumstances, divorce can be even more harrowing of an experience. If you are an entrepreneur or licensed professional, the business you have built is a reflection of your professional aspirations and likely your primary source of income.

Given that you are the one who started or operates the business, you might assume that it will be your separate property and therefore not involved in a Colorado divorce. However, many times, your ownership interest in your own company may be a marital asset to which your spouse has a partial claim. Thankfully, there are steps you can take to protect yourself in the event of a divorce.

Protect your business with a prenuptial or postnuptial agreement

Ideally, if you started your business prior to getting married, you will have your fiance sign a prenuptial agreement that designates your business as your separate property in the event of a divorce. If you didn’t already have the business at the time you got married or if you just never thought about a prenuptial agreement, that doesn’t mean you must throw yourself on the mercy of the court in a divorce.

Instead, you could ask your spouse to execute a postnuptial agreement that creates the same protection for your business. These documents typically benefit both parties by making divorce easier and less expensive.

Make sure not to commingle business and household assets

When your business provides the primary source of income for your household, you may sometimes need to finagle your finances by transferring money between accounts or covering a financial shortage at the business with personal assets.

Regardless of what accounting practices you have and how you structure the finances for your business, you want to make sure that there is never any commingling between business accounts and household accounts. You also want to prevent your spouse from accessing business funds unless they work for the business, too. If your spouse has access to business bank accounts, they will have a stronger claim to a partial interest in the business and its assets in the event of a divorce.

Consider setting divorce terms before you file

If the courts have to decide the best way to split up your assets, they may decide that allocating some of the ownership interest for the business to your spouse is the best solution. You probably don’t want your ex involved in your business after the divorce, which means your best option may be to create a settlement compromise that works for both of you before you go to court.

Stahly LLC is now Stahly Mehrtens Miner LLC, with three offices in Boulder, Denver and Steamboat Springs. Learn More