Time machines never made any sense to us. If you went forward or backward in time with a time machine such as H.G. Wells described1, what’s to stop some thief from making off with it, stranding you in either the distant past or future? Yet a time machine could be mighty handy when you find yourself nearing a divorce without a prenuptial agreement. It could cost you not only your home, but your small business as well.
Prenuptial for Peace
A prenuptial agreement is the surest way to protect a startup business. Years before you even consider gearing up for getting ahead on your own, you can sign a legal document with your soon-to-be wife, setting clear limits on what she can expect should you two divorce.
The prenuptial agreement slices both ways, of course. She deserves a chance to test her entrepreneurial spirit, too; you would not be entitled to a piece of her small business if you want to keep her out of yours.
A prenuptial agreement can provide serenity and clarity in a healthy marriage, and peace of mind in an unhealthy one. As bad as things get between you two, at least you both know how the chips, when they fall, will fall.
The Code of Virginia’s Premarital Agreement Act codifies all the rights you and she have to craft a premarital (prenuptial) agreement, with the help of attorneys:
- The rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located;
- The right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
- The disposition of property upon separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event
The Act goes on but these are the important parts for anyone considering a business (big or small — you could be a sole proprietor, partner, investor, or venture capitalist in a business of any size). Spelling out your clear ownership of a business you create, the prenuptial agreement can preserve your hard work, investment, and reputation.
S Corporations and Limited Liability Companies
SmallBizTrends points out that most American businesses are S Corporations (42 percent) while another 23 percent are Limited Liability Companies (LLCs). Both these structures protect you with limited liability, meaning your personal assets cannot be seized, sold or sued in connection with the business. This keeps your house out of business creditors’ hands. It also puts the business off limits to your personal conflicts, such as divorce, family feuds, or inheritance (unless you wish to connect the two).
Establishing an S Corporation or LLC may require some legal paperwork and attorney’s fees, but a small investment at startup could save your business from any number of plundering vultures:
- Ex wife
- Unscrupulous employee
- Scamming third party vendor
- Con artist customer
For most entrepreneurs, the preliminary steps will include creation of the business as a separate entity from the creators themselves.
Establish a Business Trust
A third option before embarking on a business is to establish a trust, covered very tidily under Code of Virginia § 64.2-719, Methods of creating trust. Transfer the assets of the business from yourself to the trust, which can own real estate, have bank accounts, and pay bills as if it were a real person. The business trust is separate from you, even as you expand and manage your business.
Your divorcing wife cannot make a claim against the trust, because it is separate from you; you preserve the business and your professional integrity even as your private life turns a corner.
How About a Well-developed Business
If you are either well into developing a small business or proceeding with a divorce and you have neither a prenuptial agreement nor legal safeguards around your business, you may need to do some old-fashioned negotiating. Your property settlement agreement could be complicated.
Realistically assess how involved your wife is or was in creating and running the business. Did she offer material support, intangible benefits, encouragement, or hours of free labor? Does she run the cash register, take out the recyclables, or order office supplies?
Many small business owners overlook their own or their spouses’ roles in running the business. Be careful you do not invite her wrath by minimizing her legitimate contributions and be willing to negotiate with her in recognition of her work.
Offer compensation, not a share of the business, so you do not end up with a divorced wife and a new business partner.
Selecting a divorce attorney with experience in handling complicated divorces, including small businesses, S Corporations, LLCs and trusts, becomes increasingly important as the value of your business increases. Make a wise, considered selection of divorce lawyer.
Few family law attorneys have the experience and deep bench of talent The Firm For Men has. Contact us online or by calling 757-383-9184 to speak with us about divorce, needs of a small business, property settlement agreements and more. We speak divorce, and we mean business.