Most states employ the concept of marital vs non-marital property or community property to determine a spouse’s entitlement to the other’s business in a divorce. You or your co-owners, partners, investors, and other stakeholders should consider some protection to prevent a spouse or that spouse’s divorce lawyer from obtaining all or some of the ownership, rights, or control of your business. While each situation is different and each state has different rules, some steps you can take to protect your business include:

  • Pre/Post Nuptial Agreements.  Spouses can agree to the distribution of assets during a divorce, prior to the marriage, and in some cases after marriage, especially if one spouse owns, inherits, or is gifted the business interest.
  • Avoid Co-mingling.  Keep all business matters and finances separate from owners’ family matters and finances.
  • Maintain Gifts and Inheritances Separately.  A gift or inheritance of business ownership generally remains one spouse’s if it is not co-mingled with other joint assets.
  • Employment.  Employing a spouse without guidance could lead to a claim of inclusion in the business, enhancement of its value, or some other basis to include the business in the marital estate for division.
  • Business Governance Documents.  Business owners can agree to restrict ownership and require a buy-out or limit rights of a successor if a sale or transfer is achieved by a spouse or creditor.
  • Use Trusts. Holding business assets in a trust may help restrict its inclusion, limit its value, or direct its future ownership in the event of a divorce.
  • Type of Ownership.  Avoid joint tenancy ownership for your business and use other ownership methods that may protect business assets from sale or partition.

Business ownership requires consideration of the consequences of both the death and divorce of an owner on the business and its other owners and stakeholders. Obtaining legal counsel to prepare for both and its impact on you, your business, your family, and other owners is a good investment to avoid or minimize the disruption of your business or family. Should you have any questions, please contact us.

This Brief is designed to provide our friends and clients with information regarding the various subject matters covered, it is not designed to take place of legal, accounting, or other professional advice.  If expert assistance is required, the services of a competent professional should be sought. This memorandum may constitute advertising under the rules regulating Illinois attorneys.