Prenups: Helping Your Business Dodge a Bullet in Divorce

Prenuptial agreements are not only for the wealthy. If you own a successful business – even if you only hope that your start-up business will one day be successful – there are several good reasons why a prenuptial agreement can benefit you and your company in the event you get divorced.

A business is a complex asset. It may be treated like any other pre-existing asset brought into the marriage and viewed as the property of the business owner. But often the other spouse did work for the business at some point during the marriage, or in some other way contributed to the success of the business. This may muddy the waters in terms of ownership.

The prenuptial agreement should not only clarify ownership of a business, but it should also provide guidance as to the division of the appreciated value of the business since the start of the marriage. Some couples may agree to jointly share the appreciated value; in other cases, the business owner may wish to keep the business fully insulated from the marriage, protecting its financial integrity.

A prenuptial agreement can also include instruction regarding the valuation of stock in the business.

Even if a prenuptial agreement exists, there are several factors that can weaken the contract, making it vulnerable to being overturned in court.

  • Do not use threats to get your future spouse to sign the contract or your spouse may be able to claim duress.
  • Give the other party sufficient time to review the contract in advance of the wedding, ideally with the assistance of a lawyer.
  • Make sure the language is clear and all assets and debts have been fully described so that the other party cannot say there was fraud.

A prenuptial agreement should make the work of property division easier, not tie up your business and personal affairs in a lengthy legal battle.

Source: Forbes, “Protecting Your Business in a Divorce: Prenuptial Agreement,” by Evangeline Gomez, November 2, 2011.