The Law Firm of Yolanda V. Torres, APLC

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Preparing for divorce is just smart business

What happens to your business if your marriage ends? The sooner you ask this question, the more options you have regarding protecting your business in a divorce. No one likes to think they will become a statistic, but the fact remains that a high percentage of first marriages, and an even higher percentage of subsequent marriages, end in divorce.

Should you risk your business and your livelihood because you hope that your marriage will stand the test of time? You trust your family to drive safely, yet you still have auto insurance. You hope that your family remains healthy, but you still have medical insurance. You hope to live a long life, but you still have life insurance. No one thinks twice about paying for these policies, but when it comes to preparing for divorce, people get nervous. Like those other insurance policies, consider your preparations as an insurance policy in the event of a divorce.

What is at stake?

As a community property state, California law says that you and your spouse own all of the marital assets equally. This means that if you started your business during the marriage, your spouse could end up with half of your business. If you started the business prior to the marriage, half of any increase in the value of the business during the marriage could go to your spouse in a divorce. Without any advance preparation, you risk the future of your business if your marriage ends.

So how do I protect my business?

Before your impending nuptials, you should negotiate and execute a prenuptial agreement. These agreements settle property division matters in advance of a divorce. You and your spouse can identify separate property, determine how to separate marital property and make concessions for your business as well. If well-drafted and properly executed, a prenup takes precedence over community property laws. A valid prenuptial agreement often contains the following elements:

  • A prenup must be in writing.
  • Each of you must enter into the agreement voluntarily.
  • Neither you nor your fiancé should feel coerced to sign the prenup or should do so under duress.
  • You each need the opportunity to review the agreement with an attorney.
  • Each of you should fully disclose all of your assets and liabilities.
  • Neither you nor your fiancé should obtain a significant financial advantage from the terms of the agreement.
  • The execution of the agreement must take place in accordance with current state law.

The failure to follow these steps could result in a judge invalidating the agreement. You should also take steps to keep the assets and profits of the business separate from any marital accounts. You would more than likely benefit from the involvement of an attorney who can help you with your prenuptial agreement and with strategies to keep the business separate from your marriage as much as possible.

We did not execute a prenuptial agreement. Can I still protect my business?

Yes, but it could prove more of a challenge. Negotiating a settlement on your own could result in a fair and equitable agreement that keeps the business intact after the divorce. However, if negotiations break down, prepare to fight for your business in court. Determining the value of the business during the marriage becomes essential, along with how you handled the business accounts during the marriage.

Considering that nothing less than the future of your business depends on the outcome of any divorce litigation, involving an attorney right away (even in a seemingly amicable divorce) would likely help ensure a more satisfactory and successful outcome.

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Yolanda V. Torres

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The Law Firm of Yolanda V. Torres, APLC
601 N. Parkcenter Drive
Santa Ana, CA 92705
Phone: (657) 210-0691 
Fax: (714) 242-7416
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The Law Firm of Yolanda V. Torres, APLC
7755 Center Avenue
Suite 1100
Huntington Beach, CA 92647
Phone: (657) 210-0691 
Fax: (714) 242-7416
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