re: Protecting a business from divorce

I believe what you're looking for is called the limited liability corporation. But, you still might be liable for some amount if she contributed to the company in any way.

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I know it's too late for my friend. I am wondering about how a currently married guy can start/set up a business that is insulated...if that's even possible

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Since I'm in a similar situation w/o that kind of money making business though, in LA. it's 50/50 so whatever my debts are in my business she will own half of that. So what kind of deal does she really want? Let me keep the business to pay child support or take on half my debts to my suppliers? If she is that stupid to take half my business, then she is just that stupid.

I would simply file bankruptcy for my half and start over. I could retain my website, rename the business, contact my suppliers hold on to customers and move on.

My attorney made it clear as day of how I could still survive and probably do better if she was to be that stupid.

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There is nothing wrong with what I described. The husband in this scenario is not a slave and forced to earn money for his ex-wife for life.

The business is worth what it is worth. After that sale, he is free to leave and do as he pleases. If that is start another similar business, then he would be free to do that.

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This is what you said:

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If he is the rainmaker, he can just either shut this business down or give it to her, and start the exact business back over with his same customers.

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If he shuts the business down with no legitimate business reason to do so he is guilty of fraudulent dissipation of marital assets. If he gives it to her I guarantee it will have to include a non-compete otherwise the value is significantly reduced which again triggers the dissipation of marital assets. I have never seen the giving away of business but shares etc yes.

He does not have to continue the business, he can shut it down as long as he doesn't reopen the same business and use the same customer base. But in choosing to shut it down it does not relieve him of paying her the rightful value of the business at the time he shuts it down instead of selling again dissipation of marital assets.

Any attempt he makes to diminish the marital assets in order to avoid paying her the legal share simply will not work if she has a decent attorney.

I have seen plenty of people try this and I loved it since they firmly put the judge on my client's side for the rest of the case, not as big a deal in a community property state but painful for them in an equitable distribution state.

People come up with all sorts of schemes to avoid their legal obligations in divorce if the couple has any money to speak of it rarely ever works and even once the divorce is "final" it can be reopened if the fraud is discovered.

I have a buddy in an interesting spot.

They get married young. Right after they get married, she starts grad school that will result in a professional degree (don't want to say too much). She runs up over 150K in student loans.

Graduates, works for a while, crazy hours, eventually she buys a practice for a stupid insanely high price. She borrows over a million to pay for it. He signs on to guarantee it along with her.

About 3-4 years pass, she decides she's done with him and divorces him. Business has no equity to speak of. He decides, she can have the practice, I don't want a dime out of it, I just want to be let off the hook for the debt. Attorneys and judge agree.

Problem is, she doesn't qualify to refinance the business debt without him. She's gone to 5 or 6 different banks / lending places, and no one will touch it.

At least he put in the decree that he still owns 1/2 of the business as community property until he's removed from the loan, but he doesn't want it, and is stuck with 1/2 community interest in something that has no value and is keeping him legally attached to her in a business relationship. When the business was formed, she set it up so she has the sole power to determine salaries and distributions, so she still pays herself a nice salary and never declares any distributions (of which he would get half).

Giant mess.

Convince her to sign a postnuptial agreement. Good luck with that.

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Why would a business that is going to bring in millions over the next 10-20 years only going to sell for $100,000? Is this a business that he knows will not be viable, for whatever reason, beyond another year or so?

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There are no assets and no contracts. He is basically a middle man with a couple clients and he makes sure the logistics work out. He could basically sell it for the accounts receivable.



Again, that example only got me thinking about how an already married guy would avoid that headache if starting a business.

Interesting.


So, how does a married guy starting a business avoid that in the unfortunate and unforeseen event of a divorce?

Probably about the only thing to do would be to set up multiple other companies located in other “business friendly” states that protect anonymity. The $ you make from main business pushes $ up to these other companies to be protected and invested. It’s not foolproof but could make it pretty difficult to find all your $. Need good attorneys and CPA’s when you own businesses. Wife’s attorney will dig through all financials, etc so they’ll piece everything together fairly easily if it isn’t done right from the start.

And why would he have $900k sitting in a bank account??? Seems inaccurate.

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business that brought in about 400k last year

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Somehow his business was valued at $1 million

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A 2.5x revenue multiple can be quite reasonable depending on the industry. If it's not reasonable in his case, he should have contested the hell out of that in the divorce proceedings and paid whatever it took to hire experts to give an appropriate valuation.