The sad reality is that nearly half of all marriages in America end in divorce. If one spouse owns or is a majority shareholder in a business, divorce can spell big trouble if the company becomes part of the divorce settlement. Unfortunately, divorce often catches the Mississippi business owner by surprise and leaves them unprepared for the financial ramifications of property division.
As Mississippi is an equitable division state, this means that the court will decide what is a fair, but not necessarily equal, division of marital property during divorce. Marital property includes all possessions and interests acquired during marriage, whether it is the family home, bank accounts, stocks and bonds, or commingled property that may have gone into building the business or that flowed back into the marital estate.
Should I protect my business from the outset?
According to the National Federation of Independent Business, there are proactive measures that the pragmatic business owner can take even before marriage in the form of a prenuptial agreement. With a well-written prenup, current and future assets related to the business can either be completely kept separate from marital property, or the percentage of future earnings or profit margins spelled out, along with any role the other spouse may have in the business.
Even without a prenup, it is possible to create a postnuptial agreement which can formalize the same concerns after the marriage has commenced.
What other protective measures are there?
Business owners can also protect the business by taking a competitive salary. Many owners who chose to forego a salary in order to invest everything back into the business later face accusations that they did not contribute to the household income during the marriage.
Shareholder, partnership, LLC or buy/sell agreements can include provisions that will protect the business from dissolution. These can include the requirement that married shareholders have a prenup that bars the fiancé from future interest in the company, or that gives other shareholders the right to purchase the business interest of a divorcing spouse.
It is also important to understand that how a judge in Mississippi interprets property division may also affect how much your business may be affected. The court will consider factors such as the length of marriage, the relative financial security of each party after divorce and a spouse’s nonfinancial contributions to the marriage, in the form of maintaining the household, raising the children or supporting the other spouse professionally.
Above all, it is important to consult with a knowledgeable family law attorney serving the Gulfport community who will help you to effectively prioritize your financial concerns.