How Business Owners Can Protect Their Assets During Divorce

Divorce can be an incredibly challenging time, especially for business owners who have worked tirelessly to build and grow their companies. The process of dividing assets, dealing with spousal support, and ensuring a fair outcome can be stressful. At Fenchel Family Law, PC., we understand the complexities of high-stakes divorces for business owners and can provide the guidance you need to protect your assets and your future.

In this blog, we’ll cover key strategies for business owners facing divorce, offering practical tips to safeguard what matters most.

Can Your Business Be Considered Community Property?

One of the most common questions we get from business owners is whether their business will be treated as community property in a divorce. The answer depends largely on when the business was established and how it has been managed throughout the marriage.

In California, anything acquired during the marriage is typically considered community property, which means it is subject to division between both spouses in the event of a divorce. However, if your business was established before your marriage, the value of the business before the marriage is considered separate property, and you are entitled to keep it.

That said, things get more complicated if your business has grown substantially during the marriage. The increased value that occurred during the marriage may be considered community property. If you’ve been a “powerhouse” business owner growing your company after tying the knot, it’s likely that your spouse may have a claim to a portion of the business’s value. But don't worry—there are strategies to mitigate this.

How Can You Protect Your Business?

While it may feel overwhelming to think that your business could be subject to division, there are steps you can take to protect your interests. Here are some key strategies to consider:

1. Calm the Hustle: If you’re in the midst of growing your business, it may be a good idea to scale back the hustle while going through a divorce. Why? Anything you build during your marriage is considered community property, which means your spouse may have a claim to a portion of it. By pausing or slowing down growth during this time, you may be able to limit your spouse’s interest in the business and reduce potential spousal support obligations.

2. Trust Your Attorney: As a business owner, you may be used to managing every aspect of your company. However, it’s important to trust your attorney to handle the details of your divorce. A skilled family law attorney will know how to navigate the legal process and protect your assets without the need for micromanagement. Let us guide you through this process so you can focus on what matters most—your family and your business.

3. Understand What’s Separate Property: If you started your business before marriage, the good news is that the value of your business before marriage remains your separate property. You won’t have to worry about sharing the pre-marital value of your company with your spouse. However, if your business has grown during the marriage, that increase in value may be considered community property.

4. Consider an Equalizing Payment: If your business has grown during your marriage, you don’t necessarily have to give your spouse a piece of the business. In many cases, an equalizing payment—either a lump sum or structured monthly payments—can be negotiated. This allows you to retain full ownership of your business while compensating your spouse for their share of the community property.

Prenuptial and Postnuptial Agreements: A Smart Choice for Business Owners

One of the best ways to protect your business in the event of a divorce is by having a prenuptial or postnuptial agreement in place. These agreements outline how assets will be divided in the event of a divorce, allowing you to safeguard your business from future claims.

What’s the Difference Between a Prenup and a Postnup?

• A prenuptial agreement is created before marriage and can protect your business, personal assets, and outline spousal support obligations.
• A postnuptial agreement is similar but is created after marriage. However, in California, a postnuptial agreement cannot be drafted if divorce is already being contemplated. This means if you’re already in the process of separating, it may be too late to get a postnup.

Can a Postnuptial Agreement Save Your Marriage?

For some business owners, the idea of a postnuptial agreement isn’t just about protecting assets—it’s about reducing stress in the marriage. If you find yourself feeling anxious about the future of your business and how it might be affected by divorce, a postnuptial agreement could offer some peace of mind.

By working with your spouse to create a postnup, you can ensure that your business stays protected while focusing on rebuilding your relationship. In some cases, this legal agreement can actually strengthen the marriage by removing financial concerns that may be causing tension.

Should You Keep Your Business Out of Court?

One of the best strategies for business owners is to keep their divorce out of court. Litigation can be expensive, time-consuming, and stressful, particularly when it involves a business. If possible, negotiating a settlement with your spouse can help protect your business from the scrutiny of the court system.

In some cases, spouses are willing to negotiate a fair settlement that allows you to retain ownership of your business while ensuring they receive a fair portion of the marital assets. This might involve negotiating over other assets, such as real estate or investment accounts, to avoid the need for your business to be formally valued and divided.

Key Questions for Business Owners Going Through Divorce

Here are a few key questions to ask yourself if you’re a business owner facing a divorce:

• Did I establish my business before marriage, and if so, how much has it grown since then?
• Should I consider slowing down business growth during my divorce to minimize my spouse’s interest in the company?
• Am I open to negotiating a settlement to avoid the need for litigation?
• Have I considered a postnuptial agreement to protect my business and reduce stress in my marriage?

By asking these questions and consulting with an experienced family law attorney, you can make informed decisions about how best to protect your business during divorce.

How Fenchel Family Law, PC. Can Help

At Fenchel Family Law, PC., we understand the unique challenges that business owners face during a divorce. We have extensive experience in helping clients protect their business assets, negotiate settlements, and create prenuptial and postnuptial agreements that safeguard their financial future.

If you’re a business owner facing divorce, schedule your case evaluation with Fenchel Family Law, PC. today. Let us help you protect what matters most—your family, your business, and your future.