THE BLOG
06/29/2016 01:02 pm ET Updated Jun 30, 2017

Essential Steps To Divorce-Proof Your Business

It's no secret that baby boomers looked at marriage through rose-colored glasses. We believed that walking down the aisle with our Prince or Princess would lead to living happily ever after. Despite the harsh statistics that estimate that 40% of marriages in the U.S. end in divorce and the emergence of marriage busters that didn't even exist 25 years ago (think Ashley Madison and virtual affairs), it seems as though subsequent generations still want to believe in the fairy tale. Focused on planning the perfect proposal, engagement photos and wedding, how much energy do they put into planning how they will deal with a marriage that doesn't live up to the fantasy?

Whether or not you believe in the happily-ever-after fairy tale, it's critical that you and your partner enter marriage on the same emotional, practical and financial page. This is especially true for long-time business owners and first-time entrepreneurs who may be entering marriage with significant assets (or soon to be significant assets such as stock options in a start-up company) and need to develop a plan to protect the business in the event of a divorce.

The first, and most important thing on your prenuptial "to do" list even before saying "yes" to the dress or venue is to have a heart to heart with your soon-to-be spouse. You want to avoid future disagreements and arguments before it gets "messy." If you have an interest in a business prior to the marriage, or even intend to start a business after marriage it can be addressed in a prenuptial agreement. Even if you started the business years before marriage, in some states like California the parties can acquire an interest in the business during marriage as a result of a spouse's efforts.

Both parties should have their own attorneys and your attorney should specialize in preparing and negotiating prenuptial agreements. The agreement must be in writing and should be negotiated and signed sufficiently in advance of the wedding date. The agreement can deal with whether the business is joint, marital, community or separate property. The parties can also agree how to characterize the income received from the business. In addition, you can agree upon what happens to the business in the event of death or divorce.

It may be very difficult to broach the issue of a prenuptial agreement when you are picking out wedding invitations or planning your bachelor party, but in the long run the benefits outweigh any risks in terms of certainty and protecting your business assets. Another clear benefit of entering into a prenuptial agreement is to see how well you communicate with each other about difficult financial issues.

I have represented many men and women who own or expect to own a business in the drafting and negotiation of prenuptial agreements. How you want to treat the business asset and the income received therefrom during marriage, in death or divorce is up to you and your fiancé/fiancée. It is not black and white and you are free to think outside the box and be as creative as possible.

Conversely I have represented many clients who did not have a prenuptial agreement and they spent millions of dollars in legal fees defending the business and even being restrained by the courts from conducting business as they see fit.

If for whatever reason, you do not sign a prenuptial agreement (or a postnuptial which is done after the marriage and can become more complicated because in some states spouses have a fiduciary duty to one another similar to business partners), then you can still protect yourself if things go sideways. Here are steps that will help you safeguard your business.

• Get an objective valuation of the business at the date of the marriage.
• Maintain good financial records.
• Try to limit the personal expenses you pay through the business.
• Don't mix personal and business finances.
• Do not borrow from your personal accounts or personal assets to fund the business.
• Pay yourself a competitive salary. This is important -- by doing that, you help prevent your spouse from asserting there is more for him/her.
• Try to limit distributions from the business.
• Do not have your spouse work in the business - it they do they can argue that they were instrumental in growing the business.
• In the event of a divorce, sacrifice other assets -- home, vehicles, property, etc. -- to keep the business.

Beyond these tips, the best piece of advice I can offer business owners is to choose a divorce attorney that has extensive experience with high-asset and complex marital dissolutions. I recommend that you ask your potential attorney about other clients they have represented who are business owners with net-worth equal or above yours. It's also good to know that your attorney has a team of forensic accountants and other financial experts that can help with business valuations and characterization of assets - crucial elements to coming up with a divorce strategy that ensures you will end up with your business intact.