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How to set up a business so that it is protected in a divorce

On Behalf of | Feb 26, 2019 | Divorce

Business owners in Kentucky should pay a spouse who works for the company market rates and should avoid using marital funds to pay for any business-related expenses. Failing to do either of these can result in a spouse being able to claim a larger share of the business if the couple gets a divorce.

Some business owners may want to get a prenuptial or postnuptial agreement. This can take one of several different approaches. To avoid having to valuate and divide the business in a divorce, the agreement can state that the business is separate property. However, some couples may prefer an agreement that names a percentage of the company’s value to which the other spouse is entitled. Finally, if both are owners, they may want to arrange for one to sell to the other or to even keep the business going.

Some people are hesitant to raise the issue of prenuptial or postnuptial agreements, but a business can also be established as not to be divided in a divorce in the organizing documents. With either type of agreement, keeping good records of cash, other transactions, funding sources and expenses is important. Business owners who pay themselves a significantly lower salary than the market rate may still have spousal or child support calculated based on the market rate.

The process of property division can be complex. In addition to the complications of dividing a business, a couple may also have a home and retirement accounts. While some people prefer to sell the marital home, it is not always easy to do this immediately if the house needs major repairs or the market is weak. Pension plans and 401(k)s require a document called a qualified domestic relations order to be divided. People should also be aware of any tax implications of selling or dividing assets.