Protecting Your Business Interests with a Marital Pre-Nup

Prenuptial agreements are not new, but with every decade that passes, they become more accepted and even expected among those with certain types of assets. A prenuptial agreement is a legally binding contract that specifies which individual owns what assets before the marriage. It also specifies who will own what assets post-divorce if the marriage does not work out. A prenup’s terms do not have to be limited to personal or real property; it can (and probably should) include a business owner’s interests in their company and related concerns.

The Importance of Including Your Business Interests in a Prenuptial Agreement

If you own a business, and that ownership began before your marriage, you will want to protect your interests in it in the even that at some point in the future you terminate your impending marriage. If you do not do this, you are putting your business interest at risk, particularly if a divorce court judge deems your business is marital property. In most cases, marital property must be equally divided between the spouses after the divorce.

A prenup can help you protect your business, and a family law attorney can help you structure it in these ways:

•  Determine your company’s value up to the date of your marriage. Once you are married, any growth in value may fall under the provision of marital “property”. However, as the owner of the company, you can protect and retain the value of the company as your own property up until your marriage.
•  Specify what will happen to your company’s appreciation or depreciation from the start of your marriage. Your prenup can detail whether or not your spouse will share in the company’s losses and profits. One consideration should include the degree to which your spouse is involved with the company, and what contributions they make in the operation or success of it. Have they invested capital in it? Do they perform work and do not draw a salary? If they will contribute to the company, specify in what way(s) they will do this and what is fair compensation for their contributions. During divorce proceedings, a common tactic taken by the non-titled spouse is to claim that they contributed to the company substantially more than they actually did. Their reasoning then is that they deserve a larger than agreed-upon percentage of the business. However, if they were drawing a salary, they have a weaker argument. Note that your spouse’s contributions to your company may include taking care of the children so that you can focus on the business. If they were the financial breadwinner while you took time off from work to return to school, this could also impact a divorce court’s decision about the division of assets despite the prenup.

 The Value of a Prenup

There are many good reasons to put a prenup in place before getting married, and a consultation with a family law attorney and business lawyer in Washington, DC can provide you with invaluable guidance.

Thanks to Brown Kiely, LLP for their insight into business law and protecting your business interests.