Becoming business partners with your spouse can possibly result in success. But what happens to the business if the marriage doesn’t work? Texas has a 10.5% divorce rate, as of 2023, according to Divorce.com. A business owner might want to consider that divorce is possible and then look for ways they can divorce-proof their business.
A prenuptial agreement can divorce-proof your business before you’re married. As the name suggests, couples sign the prenuptial agreement before getting married.
The agreement can specify if the business is marital property or separate property. If both of you have a 50/50 ownership in the business, the agreement can specify a 50/50 split in case you decide to end the marriage.
Perhaps you’re already married and didn’t sign a prenuptial agreement. In that case, you can consider creating a postnuptial agreement. It can specify the same information you’d include in a prenuptial agreement.
For example, you can specify what percentage of the business you and your spouse own. This will give you control over how the business is split should a divorce occur.
You might want to create a buy-sell agreement, even if you do have a prenuptial agreement. The buy-sell agreement explains how you’ll value the business should you divorce. It also covers other events, such as disability or death.
The main goal of this agreement is to specify who can buy the other person’s share in the business or who will sell their shares in certain situations. You can also specify terms and conditions, such as payment arrangements, should a buyout occur.
Other agreements to protect additional owners
Even if your spouse isn’t a business partner, they are likely entitled to a share of your business should you divorce. This can possibly cause problems if your ex-spouse decides to take an active role in the business.
You can put agreements in place to protect anyone else who owns the business with you. If you don’t, the other owners might have to do business with your ex-spouse against their will.
Also, your ex-spouse might have the right to make business decisions. Shareholder agreements or operating agreements can possibly protect against these scenarios.
There are several ways to divorce-proof your business. You might not want to think of divorce, but it is a possibility. At least with a plan in place, you’ll know your business is protected should a divorce actually happen.