If you’re an entrepreneur and you’re married or about to get married, the last thing on your mind is probably divorce. Preparing for divorce before or during a marriage may seem like a lack of faith in the relationship, but it’s a prudent step to protect yourself and your business.
The number of self-employed business owners in the UK rises every year, and there are now over five million self-employed workers. Pair that with the fact that there are over 100,000 divorces in the UK every year, and it makes sense that more and more business owners are taking steps to protect their businesses.
Often, the steps to protect a business are taken too late. This results in business owners attempting to squirrel away business assets for a more favourable divorce outcome — a colossal mistake that can have the exact opposite result. We’ve outlined four of the best ways to protect your business should your relationship break down.
1. Get a pre or post-nuptial agreement
If you are already running a business before you tie the knot, it’s a good idea to consider a pre-nuptial agreement. While it may not seem like the most romantic of conversations to have with your partner, it will allow you to agree on the separation of assets should the worst happen. Bringing up the possibility of a prenup may be difficult, but in many cases, it helps a relationship.
If you decide to start your own business while you are married, you have the option of creating a post-nuptial agreement. These agreements work in much the same way as a prenup but are put together during your marriage.
You can use a pre or post-nuptial agreement to outline the division of:
- Personal (business) and marital assets
- Child care and responsibilities
- Inheritance and trusts.
2. Think about your partner’s involvement in your business
A marriage is a partnership, and often couples will choose to become partners in both life and business. Many business owners decide to make their spouse a director, shareholder or employee of their business for tax purposes — even if they have no real responsibility in the business.
While this can help save money on tax, it can become an issue if you and your partner divorce. If your partner is listed as a part of your business, there is little you can do against claims of business responsibilities, which can result in business assets being shared unfairly.
If you are starting a new business and want to keep your business and personal assets separate, limiting your partner’s involvement in the company is a good idea. While you may save money on tax, you could potentially lose more if the relationship ends. If your partner is already involved in the business, you can use a post-nuptial agreement to outline the division of company assets in the event of a divorce.
3. Keep your business and personal finances separate
In much the same way you should limit connections between your business and your marriage, you should do the same with your finances. If you decide to use your business finances for personal purposes or vice versa, your partner may be able to claim assets in a divorce settlement.
If you’re unable to keep them entirely separate, you should do everything you can to keep detailed records of your finances. Keeping detailed records will prove how you used personal finances for the business and clarify any expenditure.
You should also ensure that any income taken from your business follows industry averages. Often business owners will take less income each year in favour of a more considerable sum later. If you decide to do this, your spouse can claim their share of that money during a divorce.
4. Get the best divorce lawyer
If you’re about to start divorce proceedings, you will need to hire a divorce lawyer. You must do your research and find a lawyer that has experience dealing with divorce cases involving businesses. There are many law firms to choose from, so take your time looking into each of them and take advantage of free consultations if they’re available.
But beyond needing a divorce lawyer if your marriage ends, it’s worth consulting a lawyer when you are about to get married or form your company. They will provide advice on keeping your business and personal life separate and help you create pre or post-nuptial agreements if necessary.
Throughout the entire process, it’s essential to be open and honest with your partner. While discussing finances and pre/post-nuptial agreements is not easy, speaking openly can make the divorce process far smoother or even prevent it entirely.