How to Protect Your Business in a Utah Divorce: Part 2 of 2

by Norris Law Group on December 19, 2013

divorce-business-bkt_3999In our previous blog, we discussed the differences in how the state of Utah views marital and non-marital property, such as real property (homes, rental properties) and other items such as gifts to one spouse or the other.  

Then, there may be “the family business.” If you own a business and you and your spouse both work in and contribute to the business, then Utah will likely view it as marital property, even if one spouse started the business on his or her own. But it may also be the case that the state may choose to distribute an asset such as a business fairly, which may not mean the same thing as equally.  For example, if the husband is the President and CEO of the business, while the wife holds a more junior position, a Utah divorce court may award a larger portion to the spouse who does more work and adds more value to the business.

If you would like to protect your business in case you and your spouse divorce one day, Inc. Magazine offers some specific legal strategies you can use to keep the business from being used as a “bargaining chip” in a divorce.

  • Premarital agreement (prenuptial agreement, or “prenup”). Under Utah’s Uniform Premarital Agreement Act, any agreement made “in contemplation of marriage” becomes effective when the marriage takes place. A valid Utah premarital agreement may include real and personal property, including income and retirement benefits, but may not govern child support, a child’s healthcare insurance or expenses, or child care expenses.
  • ‘Lock-out’ Your Spouse withPartnership, Shareholder, LLC and/or Buy-Sell Agreements. Such agreements should include provisions that protect the interests of the other owners if one of the owners gets divorced, including:
    • A requirement that any unmarried shareholders provide the company with a pre-marital agreement and a waiver by the owner’s fiancé(e) of any future interest in the business.
    • A prohibition against the transfer of shares without the approval of the other partners or shareholders as well as the right (but not the obligation) of the partners or shareholders to purchase the shares or interest of one or both of the divorcing parties so that any other owners can maintain their control of the business.
  • Pay Yourself a Competitive Salary. If you pay yourself salary rather than reinvesting everything you make back into the business, this can prevent your ex-spouse from claiming that s/he is entitled to more money or a larger percentage of your business. Such an argument could be based on the fact that all your money went back into the business instead of the household, and therefore, s/he saw no benefit from it.
  • ‘Pay-off’ Your Spouse. If your business is not adequately protected in a divorce, it may be possible to simply pay your spouse off with one of the following assets:
    • Your share of other marital assets (which may include cash, stocks, real property, retirement funds, etc.)
    • Property Settlement Note (a long-term payout with interest of the amount you owe your ex-spouse for the value of his/her share of the business.
    • Sell the business and divide the sales price fairly or equally.
  • Think Twice About Involving Your Spouse in Your Business. If you believe that any business you own may be considered marital property by the state of Utah, this may represent the wisest course of action.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County and throughout Utah in the area of divorce. Contact them today at 801-932-1238 or online for a free consultation.

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