Why Prenups Are Smart for Business Owners

Business owners throw everything they have, figuratively and literally, into their companies. Ever heard someone refer to their business as “their baby”? The attachment an owner feels toward a business can be quite powerful.  

Whether you are an entrepreneur, the founder of a start-up, or a family business owner, your work is a 24/7/365 endeavor. It makes perfect sense that you would want to protect everything you have worked so hard to build with a prenuptial agreement.  

A prenuptial agreement is a contract that you and your future spouse sign that determines how your assets and property will be divided in the event you choose to end your marriage. Without a prenup, your assets will be divided by the guidelines set out under New York law. 

With a prenuptial agreement, you can control how much or little interest your spouse will have in your business in the event of a divorce. The specific nature and structure of your business will inform the terms of the agreement. For example, whether you have business partners, are in a family business, or are a co-owner with your future spouse are relevant factors to consider. 

Business people know better than anyone that life is full of risk. Great ideas, great locations, great products or services, and yes, great relationships may not pan out in the way you hoped they would. A prenuptial agreement can help you preserve your business should that happen. In New York, without one, your former spouse could walk away with a good chunk of your business.

Maintain the Integrity of Your Partnership

If you have a business partner and they get divorced, their spouse may be entitled to a share of your business, whether you like it or not. For this reason, many businesspeople include a prenuptial clause in their partnership agreements. 

In this situation, the agreement will require every person in the partnership to get a prenup when they marry so the overall business can be protected in case of divorce. This arrangement certainly makes it easier to float the idea of a prenup to a potential spouse. “It’s not up to me honey, it’s in the contract,” can take any potential sting out of asking for the prenup.

Your Business Stays in Your Control

If you have started a business up from nothing without any help from anyone else, why would you want to give up total control over it if you get divorced? You wouldn’t.

Your spouse, who might not have any business experience, could be involved in making corporate decisions. Decisions that could potentially have a negative impact on management, your employees, and the corporate culture on the whole. 

With a prenup in place, you can take these worries off of your list. You also want to protect all of the properties associated with your businesses as they can be divided in a divorce as well. You will be happy you had a prenup if your spouse has debts and their creditors come after your property and assets.

What if the business isn’t totally yours and you and your future spouse have an equal partnership? In that case, the prenup can specify which of you will buy the other one out in case of divorce. You could also specify that you want to keep the business going  in case of divorce. There are lots of options to consider.

Keep it in the Family

A prenup will ensure that a family business stays a family business in the case of someone’s divorce. In these situations the agreements can be crafted in a number of different ways. 

Some agreements will grant the non-familial spouse a share in the family business if they have been married a set amount of time. Other premarital agreements may prevent a non-familial  spouse from having access to the business’s finances, getting an interest in the business, or getting spousal support that is based on the business’s income. 

Preserve the Value of Your Business

If your business isn’t set aside as separate property before your marriage and your business has increased in value during the marriage, you may have to split that appreciation with your spouse when you divorce. 

Or, when the marriage is ending, you may want to buy your spouse’s interests in your business so you can retain control of it. If you don’t have the sufficient funds to make that happen you may have to liquidate the business to achieve that end.  

A prenuptial agreement that separates your business from the marital property would prevent both of these situations from happening. Another possibility is to use a prenup to specify what percentage of the business your spouse will be entitled to in case of divorce.  

Protect Your Intellectual Property

All of the ideas you have percolating in your mind could be worth something someday. You want to protect them in the event they should turn into something financially viable down the road. Consider a prenup to designate the screenplay you are writing, or your idea for a new app or innovative product as separate from the marital property.  

What About Debt?

Carrying debt is not uncommon when running a business. Once you are married, it is shared as marital property along with all of your assets. A prenuptial that separates business debt out of the marital property will protect both spouses from the other spouse’s debt and creditors. The agreement can also state how debt that was taken on during the marriage by the couple will be split up.

Address Spousal Support

The less money you pay to your former spouse, the more money you have to plow back into your business. A prenup can set out how much spousal support you will have to pay in the event of divorce. Of course, you should pay what the spouse is entitled to receive, but you can set clear parameters on what should be expected by both of you over time. 

You have a successful business for a reason. You’re smart, make good decisions, and probably had some good advisors along the way. Protecting your hard work with a prenuptial agreement is another smart decision. When marriage is in your future, consider contacting an experienced New York divorce attorney for help drafting a prenup.