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How agreements can protect a business in a divorce

If one or both people who are getting married in California own a business, there are steps that can be taken to protect that business in case of divorce. One approach is a prenuptial agreement. If the couple is already married, they can create a postnup. This agreement might establish the company as a separate asset that will not be part of the process of property division in divorce. The agreement could specify whether the spouse will receive a part of the value of the business and how that value will be calculated. If the two are co-owners, they might want to continue running the business after a divorce or one may sell to the other.

With no pre- or postnuptial agreement, it is still possible to put protections in place. Organizing documents may specify an amount that will be paid to the spouse in case of divorce but establish that the business will not be transferred. If the other spouse does any work for the company, that spouse should be paid at market rate.

Business owners may sometimes pay themselves a salary at less than the market rate, but if they must pay support to a spouse, that support may be calculated using a market rate salary. They should keep their personal expenses separate from business expenses, track any cash transactions and document funding sources.

In California, a community property state, most property acquired after marriage is considered shared property and is supposed to be divided equally in a divorce. Therefore, a business could be vulnerable if there is no agreement in place. However, couples may want to consider other options that do not involve dividing the business, such as one taking an asset that has equal value. If this asset is the home, the person should make sure it is affordable on one income.

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