Shielding a business from a divorce

Entrepreneurs who start and own a business often struggle and sacrifice for years to make a profit. For those who do end up finding success, it’s important to take steps to protect one’s stake in a business as well as one’s share of business-related assets. This is especially important when it comes to divorce.

While in love and happily married, a business owner may not give much thought to protecting a business’ interests from a spouse. Failing to do so, however, can have significant financial consequences in the event that a business owner’s marriage is eventually included among the 50 percent of U.S. marriages that don’t last.

Whether an individual started a business prior to or after getting married, a prenuptial or postnuptial agreement can be used to clearly define matters related to the division of business interests and assets. Using this type of explicit legal document is especially important for married couples in Massachusetts as “everything is ‘in the marital pot’ for distribution upon divorce.”

In addition to a prenuptial or postnuptial agreement, a business owner should take care when deciding how to register a business. For example, sole business owners may elect to “form a corporation or LLC to protect assets.” By doing so, a business is viewed as a separate legal entity, thereby protecting an owner from certain liabilities as well as shielding a business from a business owner’s own personal liabilities, including a divorce settlement. It’s important to note, however, that if a business owner chooses this route, he or she must be careful about mingling business and marital assets.

In cases where spouses are business partners or both play crucial roles within a business’ operations, when possible, it’s often best to try to maintain a working business relationship. While not all divorced couples will be able to set aside their personal issues, those who are able to do so will be able to continue to reap the benefits and rewards of owning a business.

Business owners who are planning to marry, are married or are planning to divorce are advised to consult with an attorney who can provide advice on ways to protect business assets.

Source:, “3 Ways to Protect Business Assets in Divorce,” Brett Snider, July 24, 2013

Massachusetts Bar Association, “The basics of equitable distribution and the treatment of gifted and inherited assets in Massachusetts,” Patricia A. O’Connell and Donald G. Tye, June 2014