More than half of first marriages end in divorce, and unfortunately, second marriages often fare worse. In light of this, how should Pennsylvania business owners safeguard their businesses during and after marriage? Keep reading to learn how property division lawyers at Ilkhanoff & Silverstein can help protect your business in marriage and divorce.
Understanding Property Classifications to Protect Your Business
To keep your efforts safe and make sure you protect your business, you’ll need to understand the different classifications in property division law. The two categories are marital and non-marital property.
Marital property includes the assets acquired while the spouses were married. This can be tangible assets like real estate and jewelry, or intangible assets like life insurance policies and businesses. If you start a business while married, it may be considered marital property and your spouse may be entitled to a share of the ownership interest.
Non-marital property is also called separate property. This includes property acquired by one spouse before marriage and after separation. Typically each spouse keeps ownership of non-marital property after divorce.
However, even if you started your business before the marriage, it may become commingled. Assets may be considered commingled depending on:
- When you formed the business,
- Whether you used marital funds to support the business,
- Whether your spouse was successful before or after you married each other,
- Whether your spouse was active in running or contributing to the business,
- How the value of the business has changed over time.
Furthermore, even if the business is considered your non-marital property, your spouse may have an ownership interest in any increase in the value of the business, if this occurred after the marriage began.
Legal Tools to Keep Your Business Safe
Fortunately, there are several tools within the doctrines of property law to help safeguard your work and investments.
Prenuptial and Postnuptial Agreements
Prenuptial and postnuptial agreements are used to indicate which property in a marriage is marital and which is non-marital, in case of a divorce. Prenups and postnups can be crucial, as courts often respect the agreed-upon wishes of the spouses.
Keep in mind that prenups and postnups are still subject to a standard of fairness. For instance, courts sometimes give postnuptial agreements less regard than prenups, reasoning that a postnuptial agreement is more susceptible to spousal pressure. Or suppose you surprise your spouse with the prenup at a dinner with friends after they’ve had their third cup of wine: the court is not likely to consider this agreement valid.
Buy-out & Co-ownership
If you and your spouse never made such agreements, you can still protect the health of your business in other ways.
By far the most expensive method is to buy-out your spouse’s ownership interest.
If you can cooperate with your spouse, then you can arrange a co-ownership. In a co-ownership, your spouse does not need to share decision-making power over the business with you, though they can continue to get income from it.
NDA & NCA
The health of your business extends beyond just ownership. You’ve worked long and hard to create a reputation for your brand, and this could also be at risk in case of a divorce. An angered spouse might try to tarnish your business’s reputation or leak important business secrets.
There are two legal tools you can use to protect your business in a case like this.
Non-disclosure agreements (NDAs) prevent your spouse from spreading information the business needs to keep confidential, such as intellectual property or business secrets. These agreements can also prevent your spouse from spreading information, whether true or false, with the intention of ruining your business’s reputation.
Non-competition agreements (NCAs) prevent your spouse from using products and methods from your business in their own independent venture.
Will I Need Help to Protect My Business in a Divorce?
As you can see, property law and associated aspects of contract law offer you many ways to protect your business should you get a divorce. But the law also offers your spouse tools to argue that they have an ownership interest in your business. Give us a call today so we can best advise you on how to navigate this difficult situation.