Thu 15 Feb 2024
Navigating Divorce with Your Business: Strategic Steps to Protect Your Assets
Divorce is a complex and emotionally charged process, especially when it involves a business. However, business owners have the opportunity to take proactive measures to safeguard their companies from potential upheaval in case of marital dissolution.
According to various reports, financial issues and cultural disparities often rank among the primary causes of divorce. Disentangling a marriage can be intricate, contentious, and financially draining, particularly when shared assets and a business are at stake.
“Divorce-proofing a business entails proactive measures to shield its assets and mitigate the repercussions of divorce on the company,” stated Samara Iqbal, Solicitor, Director, and Founder of Aramas International Lawyer.
Consider Pre-Nuptial or Post-Nuptial Agreements A prenuptial agreement, commonly referred to as a prenup, is a legal contract signed by a couple before marriage, delineating how assets and debts will be divided in the event of divorce. It offers couples a clear framework for defining individual property rights, spousal support, and financial obligations following the termination of the marriage.
“If a prenuptial agreement wasn’t established prior to marriage, couples can explore the option of drafting a postnuptial agreement during the marriage,” explained Iqbal.
Similar to prenups, postnups specify the division of assets and debts upon divorce, furnishing clarity and protection for both parties.
According to Iqbal, prenuptial agreements are increasingly becoming commonplace as more couples seek protection from future uncertainties.
“They remain valuable tools for specific individuals or couples,” she affirmed. These agreements serve to shield business interests by preempting disputes over ownership and valuation, safeguard family wealth or inheritances, rectify any financial imbalances, and shield children’s assets in the event of subsequent marriages.
“Couples who prioritize transparency and predictability in their financial matters may opt for prenuptial agreements to establish unequivocal guidelines for asset distribution and financial obligations post-divorce. This can offer reassurance and allevia
The agreements protect business interests, prevent ownership disputes, preserve family wealth, address financial imbalances, and protect children’s assets in second marriages or remarriages
“Prenuptial agreements are increasingly gaining acceptance in the UAE as people become more aware of their advantages in safeguarding the interests of both parties,” she emphasized.
To ensure the legality of an agreement within the UAE court system, both parties should provide comprehensive financial disclosures and obtain independent legal counsel to ensure fair and equitable terms that adhere to local laws and cultural norms. The agreement should be drafted in both English and Arabic, registered with authorities, and periodically reviewed with a lawyer to accommodate any changes in circumstances.
“The decision to pursue a prenuptial agreement is a personal one and hinges on the individual circumstances and priorities of each couple.”
Ownership and Financial Matters
Establishing ownership boundaries and maintaining separate business and personal finances are fundamental, according to Iqbal. Maintaining distinct bank accounts helps avoid confusion during divorce proceedings. Moreover, assigning assets solely to the business ensures clarity regarding ownership.
Accurate documentation is crucial. Iqbal recommends meticulously recording each spouse’s capital contribution and responsibilities. “Clearly documenting each spouse’s stake in the business, along with their respective contributions to its growth and success,” she advises, helps create a transparent record of financial inputs.
Documentation plays a vital role in this process. Image: Shutterstock
Buy-Sell Agreements
For jointly-owned ventures, safeguarding a company from the impact of divorce can be challenging. In such instances, Iqbal suggests implementing buy-sell agreements – legal contracts between business partners outlining procedures for transferring company shares in the event of a partner’s divorce, retirement, death, or disability.
These agreements provide “a structured mechanism for transferring ownership rights in the event of divorce,” including predefined valuation methods and purchase terms.
Regular Valuations
Regular assessments help establish the current value of a company. Iqbal believes business owners should “obtain professional business valuations to determine the fair market value of the business,” facilitating the equitable distribution of marital assets in any settlement. Keeping valuations up-to-date ensures assessments accurately reflect the business’s worth and facilitates fair allocation among divorce parties.
Protection of Intellectual Property
Preserving trademarks, patents, copyrights, or proprietary methods is equally essential. “Establishing clear ownership rights and licensing agreements” for commercial innovations prevents disputes over such divisible assets. Contracts preemptively address uncertainties regarding development contributions.
Protecting trademarks, patents, copyrights or proprietary methods is equally important
Seeking guidance from professionals well-versed in both divorce and commercial law adds an extra level of assurance. According to Iqbal, they provide “guidance on strategies to safeguard against divorce” tailored to each unique situation, along with “insights into tax ramifications and asset protection strategies.”
While prenuptial agreements might deter some entrepreneurs, adopting these practices helps protect a company from the impacts of divorce by removing it from the negotiation table. With proper documentation, financial arrangements, and safeguards in place, the business can continue smoothly regardless of the personal circumstances of its owners. Such comprehensive preparations offer business owners the confidence that their livelihoods will remain intact should divorce become a possibility.