On behalf of Sayer Regan & Thayer of Sayer Regan & Thayer, LLP posted on Wednesday, December 14th, 2022.

The divorce rate is higher for business owners than in the general population. In fact, studies show that divorce among entrepreneurs ranges between 43 and 48 percent. It’s even higher among dual-entrepreneurial marriages, as both are intensely focused on managing their respective businesses.

There are many reasons for this higher rate of divorce. Owning a business is stressful and takes up a lot of your time. This can lead to neglect of spouses and children, often snowballing until the business consumes every waking moment and pulls attention away from other core areas of life.

Owning a business is also financially taxing, with many owners dipping into the family’s personal financial coffers to fund operations when times are tough. Additionally, divergent goals between spouses as time goes on can contribute to higher divorce rates. Whatever the case, there’s no doubt that the stress of owning a business takes a big toll on marriage, and the result is often separation and divorce.

This is unfortunate from a marital and family standpoint, to be sure. But it can also pose a risk to the business itself. So, we ask: is your business divorce proof? If not, or if you’re not sure, it’s wise to consult with an attorney skilled in family law and business law.

Protecting Your Business

In Rhode Island, as in most states, all assets created or acquired during the marriage are considered marital assets. That means that whatever business you own and the money you make from it is shared with your spouse. Put another way, it’s fair game if you divorce – unless you take steps to protect it otherwise.

Many small business owners overlook this fact and don’t really consider this when the marriage and business are young and both parties have a hopeful eye for the future. But the fact remains that when couples divorce, assets must be divided, and a small business is often a couple’s largest asset.

While there are steps you can take to protect your small business after a divorce filing has occurred, it’s always better to protect your business before your spouse asks for a divorce. If you do not have a divorce-proof business, you may be forced to give up other large assets, such as the house, cars, and retirement accounts so that you can hold onto your business.

Looking Ahead: Tips

No one wants to assume they’re going to get divorced, yet you need to protect yourself for any eventuality.

The simplest way you can divorce proof your business is to create a written agreement that is signed by both spouses. Usually when people want to protect separate property from possible future divorce, they get what’s called a pre-nuptial agreement. But you can also get a post-nuptial agreement to achieve essentially the same thing. This agreement spells out which part of the business, if any, would be considered marital property and which would be considered separate property.

Another option is to propose a signed agreement that provides your spouse with some level of financial protection in exchange for allowing you to retain sole control of the business, i.e., an agreement to sell all interest in the company should divorce occur — at a rate that should be determined by a third party.

Another option is to transfer the business’ assets into a living trust, which transfers ownership of the business to a third-party trustee. You still retain control over the business and are still able to earn money from the business. But if you get a divorce, it can’t be divided because you don’t actually own the business.

These are all tricky scenarios and emotions are likely to be high during these conversations. Whatever you decide, relying on the assistance of a lawyer skilled in business and family law is essential in securing a valid, legal and fair agreement to divorce proof your business.

Contact Sayer Regan & Thayer for Family Law in Rhode Island

We can help you figure out if your business could survive a divorce. It all starts with a no-cost, no-obligation consultation with our attorneys. Please contact us today in Newport or Wakefield or chat online.

These materials have been prepared by SRT for informational purposes only and are not intended and should not be construed as legal advice.