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How do I protect my family business in a divorce?

On Behalf of | Oct 11, 2021 | Divorce

Many people in the Montgomery area have worked hard to build up or grow a family business.

As a result, they may have a lot of their wealth at stake in this asset, and they would not want to lose it to a spouse in a divorce. This is especially true if the spouse had a limited role in the business.

A prenuptial agreement is a good start for protecting a family business

Prenuptial agreements are a good way for someone who has a share in a family business to protect that interest. Prenuptial agreements are valid in Alabama, although they must be reasonable and just to both sides. Moreover, they cannot be marred by fraud and deception.

Practically, a prenuptial agreement can clarify that a person’s interest in a family business remains his or her interest outright and will not be subject to the ordinary property division in a divorce.

In other cases, a prenup may instead clarify how one spouse can buy back his share in the business without having to sell or turn over any control of the business to his spouse.

Some closely-held businesses may even require family members who own a share of the business to sign a prenuptial agreement.

Recordkeeping and expert advice will also be important

If there is not a prenuptial agreement in place, then depending on the circumstances, an owner may be able to argue that all or part of her interest is not marital property under Alabama law.

In most cases, though, the owner is going to have to divide her interest fairly with her spouse. Candidly, this means there is going to be some financial loss involved.

However, it is still important to have good records of the business in order to come to an accurate and fair valuation of the business.  A fair valuation means that an owner is not going to pay more than a just share to his former spouse.

Splitting a family business in a divorce also often requires the help of both financial experts and legal professionals who can advocate for a business owner and come up with the best alternative for paying off a former spouse.