Divorce impacts you in a number of ways, including personally, emotionally and financially. This is especially true for small business owners faced with divorce. In this case, a business may be a shared marital property, which means that it would be eligible for the division as a part of the divorce process. Business owners must take proactive steps to protect their enterprise, which entails several effective tactics.
1. Implement a form agreement
A prenuptial agreement could designate a business as a separate asset. This is the case when one spouse is solely responsible for business operation and decision-making related to business needs. The document can also make decisions about how much, or any, of the revenue earned by the business during the marriage, is marital property. Postnuptial agreements are another type of marital contract that can protect your business, but these documents are often harder to enforce. This is because postnuptial agreements take place after a couple is already married.
2. Establish separate finances
In addition to the above, the source of business funding is another consideration. Businesses founded before marriage must have accurate records that reflect details of business costs, including the purchase of a building to operate out of, the purchase of supplies and other financial considerations. Keeping business and personal finances separated is also encouraged. Combing expenses makes it harder to establish the true value of your business.
3. Pay yourself the market rate
Your spouse may also ask for spousal support during the divorce proceedings. In this case, the court may look at the market rate for the role you play in your business and use that to calculate a higher spousal support rate. In the same respect, make sure that you are compensating your spouse for any work he or she does for the business using the same standards. That way, your spouse cannot claim improper compensation for the work completed on behalf of the business.