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How individuals can protect business resources when divorcing

On Behalf of | May 21, 2024 | High-Asset Divorce |

A business that someone has purchased, started or inherited is potentially their most valuable resource. It could also be a major point of contention if they divorce. Someone who has invested years of their life into creating or running a company does not want that effort to go to waste just because they are choosing to end their romantic partnership.

It is, therefore, necessary for business owners preparing for divorce to be proactive about protecting the organizations they own and operate. The following are some of the strategies people utilize when they want to protect their business holdings in the event of a divorce.

Marital agreements

Both prenuptial and postnuptial agreements can potentially protect certain resources when people file for divorce. Spouses often make a point of designating certain assets as their separate property in a marital agreement. Those separate assets are then not at risk of division in divorce proceedings. Negotiating a prenuptial agreement before getting married or a postnuptial agreement during a marriage can protect someone’s business holdings.

Proper business valuation

An owner could be at risk of losing an inappropriate portion of their business’s value in a divorce if they do not determine a reasonable fair market value for the organization. There are numerous different valuation methods that people can use to estimate what a company is worth. Choosing the right valuation method is important to ensure that the other spouse doesn’t claim more than their fair share of the business’s value when the couple divorces. People also need to watch out for signs of double dipping. That happens when someone accounts for future income as part of the valuation process and then also uses the income to justify a request for spousal support or alimony.

Equitable distribution laws

The good news for those worried about splitting their marital property in a divorce is that they don’t have to split everything in half. Equitable distribution rules offer a bit more control for those negotiating a settlement. There are many ways to fairly or equitably divide property that do not necessarily require the sale of the business or the division of its equity.

Identifying resources that may have a major impact on someone’s future financial stability can help them as they push for a fair outcome in a divorce. Those who own businesses may need to be proactive about protecting those holdings during divorce negotiations.