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Ways to protect against frozen assets during a divorce

On Behalf of | Dec 15, 2014 | Property Division

Chances are that a divorce will change many aspects of an individual’s lifestyle. In addition to losing the economies of shared expenses and dual income, an individual may also find that he or she no longer has the same tax advantages.

However, the disruption to personal finances may actually begin sooner, perhaps with the filing of a petition for divorce. Specifically, a divorce court may order that the assets of the marital estate be frozen to prevent one spouse from dissipating them.   

Yet in the case of a family or small business, this could be a recipe for financial ruin. When the threat of a divorce arises, it may be more important than ever for a business to keep operating. A prenuptial agreement can be one way to protect a business against the possibility of divorce. Such agreements may not only define property that is separate from the marital estate, but also the terms of how a marriage will end.

In addition to a prenuptial agreement, a family law attorney may also recommend that an individual consider reclassifying his or her business. To the extent the business is a sole proprietorship, the owner might consider creating a separate legal entity for the business, either as a corporation or as a limited liability corporation. However, there may be consequences if the reclassification was not done before the marriage.

Another strategy might be to place the small business in a living trust. However, unless a trust is irrevocable, there may be circumstances where a divorce court would not consider the revocable trust to be insulated from the marital estate. To learn more, check out our firm’s page devoted to family business protection during a divorce. 

Source: The Wall Street Journal, “How to Keep Your Inheritance in a Divorce,” Neil Parmar, Nov. 9, 2014 

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