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How a prenuptial agreement could protect your business

On Behalf of | Oct 31, 2022 | Prenuptial Agreements

As a business owner, you may be worried about how your personal life is going to affect your business. For example, if you are contemplating marriage, you may be concerned about a potential financial impact if you and your spouse were to eventually divorce – something that happens to approximately one third of all couples in the United States.

But, there is good news. You can protect your business in advance by making use of a prenuptial agreement. Let us look at some of the benefits of doing so.

Considering Appreciation

Successful businesses are likely to become more valuable over time. Without a prenup, you risk a court declaring that some or all of the value of that business is marital property.  Marital property is any property acquired by either spouse during the marriage.  Acquisition is an ongoing process that may involve payments of money toward the acquisition of the business or marital effort that enhances the value of the business.  The value of the marital portion of the business is subject to being awarded to your spouse. For instance, maybe your company is now worth $1 million dollars but it was only worth $100,000 when you got married. By planning for this possibility ahead of time, a prenup can protect most or all of the value of your business.

Establishing that Value

A prenup can be used to establish the value of your business at the time of your marriage.  If the prenup is properly drafted even if you decide to split the profits or losses with your spouse during the marriage, the value as of the date of marriage can be protected as well as any increase in value regardless of whether the increase is attributable to your efforts during the marriage.

Defining your Assets

You may also want to use the prenup to define how your assets should be classified. Is money that the business earns considered money owned by that business, or is it your income? Do you draw a salary from your business and do you need to share this money with your spouse? Does that mean you also have to share the business’s earnings?

These are all important questions to ask your attorney, and you can certainly address them in a prenuptial agreement. Just make sure you understand what legal steps to take.