A prenuptial agreement is crucial to protect an owner’s business and keep it separate from marital assets in a high net worth divorce. In addition, it protects the spouse that does not own the business from potential financial liabilities.
What Is a Prenuptial Agreement?
One of the most common questions a family law attorney hears from couples who are considering marriage is, “What is a prenuptial agreement, and should I consider one?”
A prenuptial agreement is a legally binding contract that two people may enter into before they get married. Also referred to as a prenup or premarital agreement, it defines how their assets, debts, and spousal support will be handled if the couple gets a divorce, or one spouse passes away.
Today, Americans are waiting longer to get married. Unlike previous generations, individuals entering marriage tend to be older and have more assets, including businesses or real estate. A prenuptial agreement is advisable, especially for high net worth individuals and small business owners. This binding contract can outline how income, property, and assets are handled in the event of a separation, divorce, or the death of a spouse. It can be an effective tool to protect one or both spouses who may separately or jointly own a business. This contract must be signed by both prospective spouses before they are legally married.
A Prenup Is Important for Business Owners
There are multiple reasons why a spouse should protect his or her business with a prenup. After working hard to build a business, a messy divorce could force it to be sold to pay for the settlement if it’s not excluded from marital assets beforehand. This means a loss of income for the business owner. However, the loss of the business may also have a significant impact on others, including:
- Employees who will lose their jobs when the business is sold
- Vendors or suppliers that lose revenue with the loss of business
- Customers who need to find another company to provide the services or products previously obtained from the business
The non-owner spouse who is not excluded from the business could also be liable for any debts or other liabilities incurred by the business. A prenup could protect both spouses in a divorce.
What if a Prenup Was Skipped?
If the need for a prenup was overlooked or a couple’s financial situation has become more complicated after signing a prenup, a postnuptial agreement is an option to consider. A postnup is useful when dealing with factors that influence a couple’s financial situation, including business ownership, increased wealth, or individual inheritances. This contract allows couples to determine how businesses, assets, debts, and real estate should be split if a divorce occurs.
