The average rate of divorce in the United States is a staggering 52 percent for first marriages and an even more remarkable 70-plus percent for subsequent marriages. Tennessee far exceeds the average and ranks among the top 10 states in terms of divorce frequency. Clarksville, Tennessee, couples who want to protect assets during a divorce will find it no easy task when the asset division involves complex investments and business debt pertaining to a jointly owned company.
However, preventive measures can help avoid a complex division, if one becomes necessary. One way to divorce-proof a business is to sign a prenuptial or post-nuptial agreement to identify the business as separate from marital property. It may also be possible to avoid spousal claims of business ownership by using partnership or shareholder buy/sell agreements. For divorce proceedings, business financials should be kept separate from personal finances, if at all possible. A spouse should be identified as a salaried employee of the business instead of part owner.
If it is too late to take these preventive measures, an independent professional business valuation is essential before attempting to buy out the spouse’s share, perhaps with other available assets. If no assets are available, a payment plan utilizing future earnings from the business can help buy out the marital share of the spouse. Other available options are finding an independent investor to purchase a spouse’s share or borrowing against collateral or a life insurance policy.
Whether prepared or unprepared for a complex asset division as a result of divorce, it may be a wise decision to consult a lawyer. In addition to business assets or debts, a lawyer can offer guidance regarding other issues related to complex property division, such as stock options, investments, 401(k)s, 403(b)s, pension plans and other employer-provided retirement accounts.
Source: Nashville Business Journal, “How to divorce-proof your business,” Rosemary Frank, Feb. 19, 2014