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Why you need a prenuptial agreement if you own a business

| Jan 16, 2019 | divorce |

The number of divorced people in Kentucky is a little higher than the national average, but still pretty low — 3.8 people per thousand. However, if you’re preparing to get married and you or your spouse own a business, a prenuptial agreement can help ensure that the two of you don’t go have to go through the expensive, lengthy process of determining how that business will be divided if you do eventually divorce.

Businesses — including ones that have been in a family for generations — can suffer and even die in divorces. They may end up being sold to an outside buyer. A spouse who’s not really interested in the business and knows nothing about it can end up as part owner under Kentucky’s equitable distribution laws. Former spouses who despise each other may have to be business partners long after they’re no longer married.

Engaged couples draft prenups largely to designate how their assets and debts will be valued and divided if the marriage ends. While prenups used to be largely for the rich and famous, as one Lexington attorney notes, “People of all different income levels are getting them, especially if they are marrying later in life and bringing assets into the marriage. It’s simply a matter of agreeing whose property is whose before a marriage, and who will retain what marital assets afterward.”

Often a prenup will stipulate that a business owned by one spouse when the couple marries is nonmarital property. The spouse bringing it into a marriage will keep it in a divorce.

However, a couple may determine that the spouse who doesn’t have an ownership stake in the business will still be entitled to a portion of the business in a divorce. The prenup may also stipulate that the non-owner spouse gets other assets of similar value if they have no interest in getting part of the business.

If a spouse starts a business after they’ve gotten married, it’s too late for a prenup. Just the same, a couple can draw up a postnuptial agreement to make stipulations regarding the business similar to the way they might have in a prenup.

Prenups and postnups can save couples considerable time, money and conflict in divorce and protect their businesses. It’s important for both parties, however, to have their own attorney to represent and protect their interests during negotiations for either.