Divorce proofing business assets best done before marriage

Married owners of small businesses in British Columbia may want to divorce-proof their businesses. If one spouse acquired business assets during the marriage, the court might designate them as marital property and order that they be divided between the two spouses. If a business owner needs protection, it is best to do it before filing for a divorce.

The most appropriate way to protect a business that existed before the date of the marriage is through a prenuptial agreement. Otherwise, if the spouse can show that he or she contributed to the success of the business in any way during the marriage, that spouse might have a claim on a portion of the company. Similarly, if the income from the business was commingled with marital property, the non-owner spouse might have some claim on the business or, in the very least, on those commingled assets. Depending on the circumstances, and if the enterprise showed growth during the marriage, the court might decide that the other spouse is entitled to a portion of that growth.

If one spouse acquired the business during the marriage and the other spouse has no part in it, a postnuptial agreement could protect it. However, courts typically want to be sure that a postnuptial agreement did not involve coercion or intimidation in any way. A business owner can also sign an agreement to protect the spouse financially in exchange for full control of the business. A living trust is another option to protect a business because it will effectively be owned by another entity and not divisible.

If a British Columbia business owner took no precautions to protect business assets, he or she might have to give up a house, car or other property in exchange. Drafting a prenuptial or postnuptial agreement is best done with the support and guidance of an experienced divorce lawyer to ensure it will hold up in court. A lawyer can assess the circumstances related to ownership of the business and explain the available options to maintain ownership of the business.

Source: FindLaw, “How to Make Your Small Business Divorce Proof“, George Khoury, Accessed on Nov. 26, 2016

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