From Baby Boomers to more recent generations of married couples, a strong emphasis is commonly placed on the wedding rather than the actual marriage or practical concerns such as protecting assets and prenuptial agreements. However, it is important to consider the impact a divorce might have on a business or the economic future of a couple when one or both partners are engaged in entrepreneurial pursuits such as a start-up company or others.
Both interests in a business prior to a marriage or interests in a business that will be started after a marriage can be addressed in a prenuptial agreement. In California, for example, a spouse can acquire an interest in a business that was started years before the marriage through their efforts. Prenuptial agreements have important procedural requirements including representation for both parties and negotiations concluded well before the wedding date. Prenuptial agreements should also be in writing.
A prenuptial agreement allows the couple to address many important issues, including business-related issues. A prenuptial agreement can address joint, marital, community and separate property issues including as they apply to a business. It can also characterize business income and address how the business will be handled in divorce or death circumstances.
To help protect a business it is important to obtain an independent valuation of the business prior to marriage; keep good financial records; limit personal expenses paid through the business; keep personal and business finances separate; not use personal accounts or assets to fund the business. In addition to this, the business owner spouse should pay themselves a competitive salary; limit business distributions; refrain from having the non-business owning spouse work at the business; and be prepared to exchange other assets in a divorce negotiation to keep the business. High-asset divorces can also require experts and specialized valuations.
Prenuptial agreement gives the couple the freedom to decide within certain limits what works best for them. It is important for couples to protect business assets and to protect themselves and family law resources such as prenuptial agreements can help them do that.
Source: Huffington Post, “Essential Steps To Divorce-Proof Your Business,” Lisa Helfend Meyer, June 29, 2016