If you are a small business owner, your odds are pretty high that you and your spouse have invested a lot into the business as it is one of your biggest assets. In addition to the resources that have gone into the business, you’ve most likely also invested an enormous amount of hours into the business and you want to protect that investment. Even in the event of only being a partial owner, partner or you’re just starting in the business any of those assets can be involved in your divorce proceedings. If you are watching this video, you are likely getting ready to go through a divorce or have already started the process. In the paragraphs below, we’ll go over how a divorce can affect your small business and what you can do to protect yourself in New Mexico. 

Don’t Wait To The Last Minute

We know that divorce causes emotional and financial hardship but if you are a small business owner that impact can realistically be ten times worse. If your business does become involved in the settlement process, the process of everything going on can make it difficult for you to focus on running your business and this is because you are primarily focused on the emotional turmoil that you are currently going through. Although divorce is fairly common, most small business owners are never prepared for it. When it comes to protecting your small business during a divorce, the importance of that cannot be overstated. In an ideal situation, your business would be protected long before your marriage. Once a divorce is even something being considered if your small business is not protected, unfortunately, your small business may be at risk with the divorce. While it can be an awkward conversation before you consider tying the knot, it would be in your best interest to protect your business and all assets included. You’ve put all the work and energy into building and maintaining your business, so you deserve to protect that asset. The best way you could approach the topic is to make the conversation about anything, other than you and your spouse or fiance whether that be your kids, business, employees, or other people/entities that could be affected by a divorce.

When it comes to your business, relationships, state laws, and business types they make every divorce a unique case. The more factors you have to consider, the more complex a divorce can be. State laws vary a lot and multiple factors have to be considered when going through a divorce. The following list includes what is looked at when going through divorce proceedings:
The industry your business is in
Business types
The business’ formal and legal structure
Your partner/spouses role in the business
When specific assets were acquired
While there are many aspects that family law attorneys look at during divorce proceedings, when it comes to a business, the list above is the most common things considered. 

Pre and Post Nuptials
When it comes to protecting your assets during a marriage, the most common way people go about it is by getting a prenuptial agreement. A prenup is a binding legal document that is signed by each partner before their wedding. It outlines what happens with all assets, property, and income in the event of death, divorce, or separation. It is the easiest, fastest, and most inexpensive way to protect your small business in the event of a divorce. When one or both partners are business owners, regardless of it being joint or separate, the complexity is multiplied and a prenup is an ideal solution to protect yourself. 

With so many New Mexicans waiting to get married, the likelihood of them possessing more assets that they would like to protect before tying the knot than previous generations is getting higher. Some couples opt for a prenup before marriage to ensure that their individual assets are protected, in addition to keeping it out of the courts if their marriage does come to an end. Now, certain regulations must be followed when creating a prenup to be signed before marriage. Listed below are what needs to be considered when thinking about a prenup:
Prenups must be written
Free of coercion
Full disclosure of assets(no hiding assets)
Violating the terms listed above will invalidate your prenup. It is recommended that each party signing the prenup have an attorney represent them because it can get complicated. In addition to explaining anything that you may not understand, both parties having an attorney will increase the legitimacy of the document. Pre and Post Nuptials in the state of New Mexico are not able to control alimony, child support, or child custody. It is required that those issues be litigated at the time of divorce. 

Post nuptials are another valid option, in the absence of a prenup. Postnups still include the same vital information about assets and property found in prenups but are signed after marriage. Now, because they are signed after marriage, postnups are often not as strong as a prenup is and often tend to be scrutinized more harshly by judges. Postnups are most commonly used to update existing prenups. As your financial situation changes and evolves with businesses, family, inheritances, wealth, or other factors, postnups are a great way to mutually agree on how income, assets, debts, and any property will be divided in the event of a divorce. In addition to agreeing on how everything will be divided, postnups can also state that, in the event of a divorce, a spouse is entitled to a pre-determined amount of money and property before a certain date, which could assist you with future financial planning and any assets that you may acquire through your business. 

Other Options to Consider When Facing Divorce As A Small Business Owner

There are multiple other ways to protect your small business in the event of a divorce, but they should be established well before marriage or divorce. The following list provides other options to protect yourself and your business:
Pay yourself a competitive salary. In the event of a divorce, if you are paying yourself a competitive salary, your soon-to-be ex-spouse will not be able to say that little or no money truly went into the household, unlike if you did not pay yourself and put everything back into the business. 
Establishing a partnership, LLC, shareholder, or buy/sell agreement can also be an effective protective measure.  These protective measures are incredibly important agreements because they protect the business and assets if one of the partners gets divorced.
Another solid option is to forbid the transfer of shares without approval from other partners or shareholders or that the other partners can purchase the shares or interest of one or both of the divorcing parties, so the other owners can remain in control.
We know that divorce is stressful and unpredictable, but even more so as a small business owner. We are here to help you with your legal needs, in the event you do face divorce and aren’t sure of the best course of action. 

Anthony Spratley
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Experienced Divorce, Child Custody, and Guardianship Lawyer Serving Albuquerque and Beyond