Divorce is never easy, especially when a business is involved. But business owners can take proactive steps to shield their companies from potential fallout in the event their marriage fails.
Several reports suggest that financial issues and cultural differences are among the leading causes of divorce. Dissolving a marriage can often be tricky, messy, and expensive – especially when shared assets and a business are involved.
“Divorce-proofing a business involves taking proactive steps to protect the business assets and minimise the impact of divorce on the company,” said Samara Iqbal, Solicitor, Director, and Founder of Aramas International Lawyer.
Consider a pre-nup or post-nup agreement
A prenuptial agreement, also called a prenup, is a legal contract entered into before marriage by a couple laying out how assets and debts will be divided should the marriage end in divorce. It allows couples to clearly outline individual property rights, spousal support, and financial responsibilities after the dissolution of a marriage.
“If you didn’t establish a prenuptial agreement before getting married, you can consider drafting a postnuptial agreement during the marriage,” said Iqbal.
“Similar to a prenup, a postnup outlines how assets and debts will be divided in the event of divorce, providing clarity and protection for both parties.”
According to Iqbal, prenups are becoming “the norm” as more couples look to protect themselves from future uncertainties.
“They can still serve as valuable tools for certain individuals or couples,” she said, as these agreements help protect business interests by preventing disputes over ownership and valuation, preserve family wealth or inheritances, address any financial imbalances, and protect their children’s assets in the event of a second marriage or remarriage.
“Couples who value clarity and predictability in their financial affairs may choose to enter into a prenup to establish clear guidelines for asset division and financial responsibilities in the event of divorce. This can provide peace of mind and reduce uncertainty during a potentially challenging time.”
“Prenuptial agreements are definitely becoming more widely accepted in the UAE as awareness grows about their benefits in protecting both parties’ interests,” she added.
To create an agreement that holds up legally in the UAE court system, both parties should make full financial disclosures and seek independent legal advice to ensure fair and reasonable terms that consider local laws and cultural norms. The agreement should be drafted bilingually in English and Arabic, registered with authorities, and reviewed periodically with a lawyer to adapt to any life changes.
“The decision to enter into a prenuptial agreement is a personal one and depends on the unique circumstances and priorities of each couple.”
Ownership and finances
Delineating ownership and keeping business and personal finances separate are foundational, according to Iqbal. Maintaining independent bank accounts prevents co-mingling that can cloud matters during divorce proceedings. Likewise, titling assets solely to the business provides certainty over ownership.
Documentation is equally important. Iqbal recommends carefully recording each spouse’s capital contribution and role. “Clearly document each spouse’s ownership stake in the business, as well as their respective contributions to its growth and success,” she suggested in order to build an auditable account of monetary inputs.
Buy-Sell agreements
Divorce-proofing a company can be tricky when it comes to jointly-owned ventures. In such cases, Iqbal suggests implementing buy-sell agreements – a legal contract between business partners that defines how company shares will be transferred if a partner divorces, retires, dies, or becomes disabled.
It provides “a mechanism for the orderly transfer of ownership rights in the event of divorce.” This can be done by outlining valuation methods and purchase terms in advance.
Keeping valuations current
Regular assessments also help establish a company’s worth at any given time.
Iqbal believes that business owners should “obtain professional business valuations to determine the fair market value of the business” to aid the allocation of the marital portion in any settlement. Updated figures guarantee assessments reflect reality and that the parties involved in the divorce proceedings are allocated their share fairly.
Intellectual property
Protecting trademarks, patents, copyrights or proprietary methods is equally important.
“Clearly establish[ing] ownership rights and licensing agreements” for commercial innovations prevents disputes over such divisible assets. Contracts resolve uncertainties surrounding development contributions preemptively.
Obtaining counsel from professionals with divorce and commercial law experience provides an added layer of security. According to Iqbal, they offer “advice on divorce-proofing strategies” tailored to each unique scenario as well as “insights into tax implications and asset protection strategies.”
While prenuptial agreements may deter some entrepreneurs, implementing these practices divorce-proofs a company by removing it from negotiations. With documentation, financial divisions and protections in place, the business can continue seamlessly irrespective of its owners’ personal circumstances. Such thorough preparations give businesspeople confidence their livelihoods will remain unscathed should divorce emerge on the horizon.
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