Like marriage, starting a business is a labor of love. It requires innumerable hours of mental, emotional and sometimes physical work to build something from the ground up. Even with the best start, most business partners understand that there are risks associated with ownership — like property damage, theft, natural disasters, cybersecurity breaches and so on — and they take steps to protect themselves from the possibility of something going wrong like taking out insurance policies to mitigate their exposure to risk.
Prenups serve a similar function for partners of a different nature – couples who are embarking on a marriage. A prenuptial agreement is a legal document, drafted by a prenuptial attorney and signed by the couple before they are married, that creates guidance and establishes expectations regarding the rights to and distribution of property, income, debts, and inheritance both while they’re married and should their marriage end. And like an insurance policy, it can protect a business in case the unexpected happens: divorce.
Regardless of whether a business predates a couple’s marriage, and even if it is a family business that was passed down to one of the spouses, without a prenup, the business may be deemed to have a community property interest – either in the underlying asset or the income generated. This is true regardless of the amount of involvement either spouse contributed to the business before and during the marriage. This means that even if one spouse spent their own time, money, and energy on getting a business off the ground, growing it, and maintaining it while the other spouse was not involved, both may benefit from the company’s earnings following separation and divorce.
A prenuptial agreement benefits both parties. That’s just one of its many advantages. Signing a prenup can define which assets, including a business, are separate property or property owned before marriage, and which are community property or property the couple acquired together. As such, for a business owner, one of the legal advantages of a prenup agreement might be to establish the business, its intellectual property, trade secrets and confidential information as their own before getting married.
If the couple is interested in sharing the business, a prenup can also outline the division of ownership and control of the business if the marriage should end. Signing a prenup gives the couple the opportunity to establish answers to significant questions about their business when they are at their best/most agreeable when entering a marriage, rather than when they are often at their worst/least agreeable upon ending a marriage. Answers to questions like these and more can all be hashed out in the prenup:
- What are the various responsibilities and expectations of each partner?
- Who will maintain the majority of the shares?
- Who has decision making power in the event of a divorce?
And because the prenup is signed by both parties, it strengthens and legitimizes the responses to those questions and offers an undeniable expression of both parties having been in agreement on a given issue prior to getting married, which, if the prenup is well drafted, makes it less likely to be contested. That alone is one of the biggest potential legal benefits of a prenup.
Even if both parties agree that just one spouse will retain ownership of the company, it’s important to note that there are advantages of a prenuptial agreement for the other spouse as well. Without a prenup, if a business incurs debt or liability during a marriage, both parties may be responsible for a portion of the financial obligation in the event of a divorce. A prenup can protect the spouse who is not retaining ownership of the business from assuming that debt and liability.
Ultimately, it’s all about communication. Regardless of what an engaged couple with a business at stake decides, the important thing is that they have a detailed conversation, follow it up with clear shared decisions, and ideally outline those choices in a prenup. Protecting assets in marriage and also after marriage with a prenup can safeguard both spouses and their business from just-in-case scenarios including a divorce that threatens to drain the bank and end the business.
Isn’t it better to be prepared?
Want to learn more about protecting your business with a prenup?
Caitlin Ashton, a skilled, experienced prenup lawyer and Partner at Laughlin Legal Family Law Group in San Mateo advises, “I think there’s security in understanding and going into your marriage with a clear picture of your spouse’s income, your spouse’s assets, your spouse’s debts. Sometimes there are student loans or family loans or issues that come out of the woodwork that you should know before you get married rather than finding out later and it being a potential issue in your marriage.
The happiest outcome for our premarital agreement clients is to stay happily married for the long term and then the prenup will never come into play. But in the event it does, the good news is that most likely, the way it’s drafted will expedite their divorce proceedings and save them some time and money at the end of the day.
If it makes it any easier for everyone to do this, we offer free consultations to couples considering a premarital agreement.”
Want to have a conversation with an experienced family law and prenuptial agreement lawyer?
If you or someone you love is interested in getting a prenuptial agreement, learn more about how the family law and prenup attorneys at Laughlin Legal can represent you and your values. Call Laughlin Legal now at 650.343.3486 to schedule a free consultation. If you’d prefer, you can email them to set up your appointment. If they miss your call, they’ll respond promptly and call you back as soon as possible.
Laughlin Legal Family Law Group
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