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Five ways to protect your business during a divorce

You have worked hard to build your business. There were many late nights, numerous strategy sessions and a committed approach to customer service. Finally, all your hard work has paid off, and your business is a success.

That is why now that you are about to go through a divorce, you are concerned how this will affect your company. You do not want your soon-to-be ex to take your business from you. Here is what you need know about protecting a business during a divorce.

Property division is equal in California

California is a community property state. In a community property state, assets acquired during a marriage are subject to equal division. Property owned before a marriage, or assets received as a gift or inheritance, are not community property. These assets are not divided during a divorce. However, the rest of your marital assets are divided equally between you and your former partner.

Keep your business money separate from your personal finances

It makes good business sense to keep your business finances separate from your personal finances. You should not be spending your personal money on business needs, and you should consider paying yourself a decent wage. During a divorce, keeping these interests separate protects you from claims that shared marital assets were spent on the business. If you are spending personal money on the business, your former spouse may claim a bigger stake in your company.

Remove your spouse from the business

If your soon-to-be ex works for your business, transition him or her out of the business as soon as possible. The more involved your former partner is, the stronger his or her claim to business profits and the future growth of the business. Inc. states if you can show your spouse does not have an active role in the business, you should start to document it immediately.

The split must be equal, but everything does not have to be divided in half

You likely want to retain complete control of your business. Community property laws do not require that you give half of your business away. Entrepreneur recommends you offer other assets in place of your business, like your family home or other valuable property.

Have your business evaluated

You must put a numerical value on your business. You could ask your company’s accountant to evaluate the current value of your business. Or you may need to contact a valuation professional. If you think the number is too high, another party can review the valuation.

You can offer to make payments

You do not have to pay all the money to your former spouse immediately. Offer to pay what you owe through a payment plan. You might need to raise funds by offering a stake in your company to employees, getting a loan or maybe you can pull money from your business cash flow.

A court typically does not recommend a business be sold to pay off divorce debts. You have options to protect your business, and the sooner you start taking steps, the better off your business will be.

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