Divorce and Business: How to Protect Your Interests

If you start a business with a person who is married, you may not realize that you have two business partners instead of one. Any property acquired during marriage belongs to both spouses (unless the property was a gift or inheritance to one spouse).

Unless a legal agreement specifically limits one spouse’s interest, if a couple divorces, your business partner’s spouse has a stake in the business. And that could be a big threat to your livelihood.

How to Prepare for the Worst

In a divorce, if couples don’t already have agreements about division of property, the court will decide how to distribute assets. And in Maryland, courts are not obligated to divide assets 50-50. The distribution of marital property need only be “equitable.”

An attorney in San Diego told Entrepreneur magazine that during the startup phase, owners should set up legal agreements that require their spouses to sell their share of the business back to the company, should they divorce. Such agreements help ensure that the spouse who hasn’t been actively involved in the business would be compensated for his or her interest, without much disruption in daily operations. One caveat, though: If your business partner is going through a divorce, you may find you’re putting in more hours and are left to make decisions on your own for a while. Any divorce is distracting and time-consuming, to some degree.

Having Tough Conversations

Married couples may not want to discuss what-if scenarios about divorce, but it’s an important part of your business planning, as is including legal language about what happens in the event of a business partner’s death, disability, retirement, or when one partner wants out of the business. And if your spouse is your business partner, you may have to talk about some uncomfortable scenarios while setting up your business.

Charley Moore, the founder and CEO of Rocket Lawyer, explained to Crain’s Chicago Business the mistake many married couples make when launching a business together:

“If I were to tell a person that you’re going to enter into a deal and about half the time you’ll lose your assets, they would definitely want to put that deal in writing. But they don’t. That’s marriage in America.”

In other words, love and optimism are not a solid foundation for a business partnership. Running a business can be stressful, especially for spouses, who may have trouble switching from work mode to home mode at the end of the day. And when you don’t have legal agreements that define each spouse’s responsibilities, disputes may arise within the marriage, leading to resentment.

Getting a Good Start

In any business – whether you’re a sole proprietor or have several business partners – your odds of succeeding depend heavily on how well you initially set up your business.

An experienced business law attorney knows all the scenarios that can arise and threaten a business – factors that owners may not think about until it’s too late. When you get good legal advice from the beginning, you’ll be well prepared to handle any challenge you encounter.

Thienel & Lusk, LLC, specializes in assisting entrepreneurs at start-up and throughout the lifecycle of their business. Our goal is to help you avoid litigation, but we’re ready to actively represent our clients in court when litigation is necessary. Our experienced attorneys have provided legal counsel and representation to business owners in Frederick County, Howard County, Baltimore County, Baltimore City, Carroll County, Washington County, and Anne Arundel County, and other counties in Maryland. Please call us at 443-535-9715 or fill out our contact form if you have any questions about this topic.

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