A prenuptial agreement is a contingency plan that couples may not want to use but which can prove invaluable by protecting their individual assets if they ever divorce. These marital agreements may also provide significant protections if either spouse owns a business.
Any property obtained during marriage may be allocated if the couple divorces. Therefore, entering a prenuptial agreement helps establish the value of the business before they wed and protect its premarital value as separate property. Any additional value gained during the couple’s marriage may be divided during divorce, however.
The prenup may also set forth any business appreciation or depreciation during marriage. This should also address the impact of any direct or indirect contributions or capital provided by the spouse who does not own the business.
The agreement should contain specific expectations on this spouse’s role in the business and assure that fair market value compensation is provided. This helps avoid disputes that a spouse deserves a larger part of the business or was not paid fairly. Indirect contributions, such as staying home to raise their family, should be addressed. The source of capital for certain events, marital or business, is also important. Setting forth a business valuation process will also avoid a costly review by other parties, which could disrupt business employees and accountants.
The business may fall within the same distribution guidelines for marital property unless the agreement contains the percentage value of the business that will be allocated to the non-owning spouse. For example, assigning a 10% value will determine how much that spouse will receive even if their other property is divided equally.
Finally, the prenup should determine what happens if the business owning spouse declines a market-appropriate salary and invests those funds in the business. This subtracts from marital assets and any money that would be allocated in a divorce. Each spouse should have legal representation when negotiating and executing a prenuptial agreement. An attorney can also help assure that their agreement is valid, enforceable fair and reasonable.