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I am (happily!) married. But I am also a software engineer, and as such, try to consider every possible path of events ahead of time.

I am about to start a Nevada-based LLC, although the company will be located in NY. Some of the funding for the startup is coming from grants and loans, but some of it would be coming from the joint checking account that belongs to both my wife and I. Let's make it simple. Say the startup costs $10. $6 is coming from loans/grants and $4 is coming from this joint checking account. We have no prenup. I will be running the company 100% with her having absolutely nothing to do with its management or operations.

If, we were to ever get divorced (although please note: I have no plans/intentions on this ever happening!!!), I'm concerned about a situation where my wife would lay claim to owning some portion of the company. Using my simple example above, perhaps this claim would be for 20% (since we have no prenup, we split everything 50/50 and I would own 40% of the company since I/we contributed $4). Don't get hung up on these numbers, I'm just putting them here as a straw man.

My question: how to protect against such a claim, if it ever arose? That is, how to protect my ~40% in the event of a divorce? I ask because I plan on filing the LLC soon.

  • How should we answer your wife if she hypothetically asks how to protect her 20% of the company that you are founding with mutually-owned capital? – Ask About Monica Sep 13 '16 at 19:51
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You can't.

The general rule is that all marital assists are divided in whatever way the court decides. In the absence of a pre-nup, your company (whether existing prior to the marriage or created after) is a marital asset.

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There are two different interests you may consider protecting. The first is the value you create in the company, and the second is whether your wife might inherit some control over the company if you divorce. You can't really protect the value, and you probably shouldn't if you are funding it at least partly from your joint funds as that value is just another marital asset.

The control, however, is something you should carefully consider. Suppose your wife ends up with 20% of your company. Unless you plan otherwise, she will have voting stock and can (sometimes) do things like force a sale of the company in order to convert her 20% ownership into cash. Or swing a board election to depose you as CEO. Or many other nefarious things if your relationship has soured. A good formation lawyer (or even just a competent one) will address this issue in the formation documents and operating agreements. Just make sure you are being fair on the value side and usually you can work around the control side. If you are incorporating on your own, look at the NOLO press or other DIY legal books and they will often cover exactly this topic.

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