You have a successful business, and now you’re preparing for another chapter in your life: marriage. It’s an important milestone, and you’re excited, but you’re also concerned about how marriage might affect your business.
All the hard work, money and time you invested in your business is yours, and you’ve heard stories of businesses getting stuck in messy divorces. You don’t want that to happen. What can you do?
You have good reasons to worry. A business is a substantial asset that can become eligible for property division if you and your soon-to-be spouse ever decide to divorce. But if you haven’t yet tied the knot, you might be in luck. A prenuptial agreement can help.
A prenuptial agreement – also called a prenup – is a contract between two individuals regarding the property rights of their marriage. Prenups allow you to set boundaries for your assets and ensure that if your marriage ever ends, you will be able to walk away financially stable.
For businesses, a prenup can help you:
- Establish a value at the time of marriage. By establishing the value of your business before marriage, you will be able to protect that amount for yourself upon divorce. This means your spouse would not be able to receive a percentage of that protected business value at the end of your marriage.
- Determine how to value the business at the time of divorce. Plan ahead for how to value the business in the future. This can help you avoid third-party valuations and provides you more control.
- Decide if your spouse will contribute to the business. If your spouse is interested in helping you with your business, you should discuss the extent of their role and contributions. Setting these boundaries can prevent your spouse from claiming they contributed more during the marriage and, therefore, should be compensated accordingly at the time of divorce.
- Decide how much of your business your spouse can receive in a divorce. With a prenup, you can decide a set percentage of your business’ value to give to your spouse during the divorce. This option can give you more control, as well. For example, if you decide your spouse can receive 15% of the business value, you can still retain the 85% for yourself instead of potentially losing half of the value in the property division process.
- Decide how to manage the business’s income. The way you handle the business income can affect how your business might be divided upon divorce. If your income has comingled, then your spouse is eligible to receive a percentage. By outlining how you plan to keep your income separate, you can protect your business during the divorce.
Your business is an important part of your life, and you should do what you can to protect it. A prenup can help you prepare for any challenges that might come from your marriage and ensure that your business can survive after a divorce.
