How a Prenuptial Agreement Can Protect Your Business During Divorce

 Posted on April 13, 2021 in Prenuptial Agreements

If you are a business owner, you need to understand that getting divorced could have a significant impact on your ownership of business assets, the income you earn through your business, and your ability to continue operating your company successfully. For business owners, divorce often involves complex property litigation as they determine how to divide their marital assets and debts. Those who are looking to protect a family business or professional practice in the case of divorce should consider creating either a prenuptial agreement or postnuptial agreement.

Addressing a Family Business in a Prenup or Postnup

A prenuptial agreement, or prenup, is a legal agreement signed by a couple before getting married. This agreement will detail how certain matters will be handled if their marriage ends in divorce, and it may include decisions related to marital assets such as family businesses. A postnuptial agreement, or postnup, functions the same as a prenup, but it is created and signed after a couple is already married.

A prenuptial or postnuptial agreement may address a business or professional practice in the following ways:

• Establish the current value of the business - A business owned by one spouse before getting married will be considered separate property rather than marital property that must be divided during a divorce. A prenuptial agreement can state the value of the business at the time of the couple’s marriage, or a postnuptial agreement can establish a value for a business that was founded or acquired during a marriage. This will help a divorcing couple better understand any changes in the value of the business during their marriage.
• Decide how business interests will be divided - Rather than dividing business interests equally between spouses, a prenup or postnup may specify the percentage of the business that each spouse will own. If one spouse will be the sole or primary owner of a business, an agreement may state that the other spouse will receive other assets of an equivalent value.
• Address appreciation in value of a separately-owned business - A spouse may continue to own a business that is not considered marital property, but they may need to address an increase in value of their business during their marriage. A prenuptial agreement may state that increases in value will also be considered separate property, or it may detail the other spouse’s right to share in these increases.
• Determine business valuation methods - To avoid disagreements about how to determine the value of business assets, a prenuptial or post-marital agreement can decide how these matters will be addressed in the case of divorce
• Address income and debts - Some business owners choose to limit the amount of personal income they receive and use these funds to build and expand their business. This reduced income may affect divorce-related issues such as spousal support or child support. To avoid disputes over these issues, a prenup or postnup may specify how a person’s income will be calculated during the divorce process. An agreement may also specify who will be responsible for paying debts. This can protect a spouse from being liable for the other spouse’s business debts, or it can ensure that a business owner will not be affected by the other spouse’s personal debts.

Contact Our Austin, TX Prenup Attorneys

Whether you are a business owner who is getting married, are planning to embark on a new business venture during your marriage, or wish to make sure your business will not be negatively affected by a potential divorce, Powers and Kerr, LLC can answer your questions and help you create a prenuptial or postnuptial agreement that will meet your needs. Contact our Austin prenuptial agreement lawyers today at 512-610-6199.

Sources:

https://www.business.com/articles/protecting-your-business-with-a-prenup/

https://www.forbes.com/sites/frawleypollock/2019/07/20/how-a-prenuptial-agreement-can-help-protect-your-business-interests/?sh=461d140e4f94