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Protecting Assets Against Divorce

Is it necessary to cut a spouse from ownership in order to protect business assets against divorce?

By Dr. Donald J. Jonovic

Submitted by K.F., via email:

My husband and his brother recently inherited their family
farm and decided between themselves they wanted to incorporate – excluding
their wives.

My husband and I have had our own farm for many years. Over
that time, I’ve raised our children and have been deeply involved in the
operation. It’s done well.

I’ve always known that my husband’s dream was to form this
big, lovely, family corporation with his dad and brother, and that was OK with
me. The surprise came after his father died, when he told me he intended to
leave me off of it to protect everything for our kids. I wasn’t good enough to
be included in the new corporation.

I understand that fear of divorce was the problem. My
husband’s parents were divorced, and it was bad for him growing up. Still, that
kind of family background is not the type I came from. My family has never
experienced a divorce. What people brought into their marriages was always
looked at 50-50.

Now the problem has spread to our own farming business, on
which we both (along with our bank) took serious risk over the years. His
family didn’t want us involved in their farm. Now my husband tells me he wants
me left out of our farm, too.

I’m being punished for something that I had nothing to do
with (his parents’ divorce), and it’s a horrible time for me right now. They
see me as the family dream destroyer.

It’s pretty apparent to me that they are worried about
protecting everything for themselves with no regard for me. My upbringing is
telling me, “Stick by what your husband wants.” But I’m a stay-at-home mom with
no income. My gut says, “Protect yourself – that’s just what he’s doing.”

I need advice from someone who can look at it from a
business standpoint.

The solution:

Most states have laws regarding how assets accumulated during
marriage will be divided in the event of divorce. Unless there’s a prenuptial
agreement, both spouses usually have some claim on the value of marital assets.
K.F.’s husband can’t simply declare her out of it.

Specific assets can be protected, through trusts, that allow
a person to benefit (but not own or control) assets during life. Shareholder
and LLC operating agreements define who can own shares or be members. If
someone unqualified receives those assets through court judgments or divorce
settlements, their only option then is to sell them back.

K.F. wasn’t involved in her husband’s family’s farm, so she
has no voice in their decision to restrict land inheritance to their bloodline.
Still, she can have a legitimate claim to part of the land value as a shared
marital asset.

At even greater issue is their own farm. K.F.’s husband may
be worried that a divorce and remarriage could put “his” farm in the hands of
another man. Even if those fears were justified, he and K.F. still built those
particular assets together, and he can’t simply leave her out.

There are considerations beyond legalities. Her husband’s
attitude represents a terrible wrong: the often-held belief that in-laws are
interlopers, tolerated because they’re needed to produce the next generation of
heirs, yet they’re seen as foreigners from whom the family must be defended. No
surprise K.F. feels she’s being treated as little more than a brood mare.

It’s astonishing how blind people are to the pain caused by
actions that smugly say, “You’re not family.”

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