PRENUPS TO PROTECT SMALL BUSINESSES

Avoid Future Issues With Your Small Business

If you own a small business and you marry, that small business is your separate property rather than marital, subject to division in the event that your marriage ends in divorce. That said, any appreciation in the value of your business could be considered marital property, and assets have a way of commingling – a fact that can easily complicate the equitable division of property if the marriage does end in divorce.

While no one enters into a marriage thinking they will eventually divorce, protecting your small business from a complicated division from the outset makes good business sense and is in no way indicative that you believe your marriage is doomed to fail. If you have questions or concerns regarding business ownership, marriage, and prenuptial agreements, an experienced Florida prenup attorney can help.

Without a Prenup

A prenuptial agreement helps to guide how your assets will be divided upon divorce, including your business. A prenup can help cement the separate nature of the business you brought into the marriage. Because the lines between separate and marital property often blur during the course of a marriage, the following scenarios are much more likely to happen – in the event of divorce – if you don’t have a well-considered prenup in place:

• If your spouse works with you in your business, things can become very complicated very quickly without a prenup firmly in place. Even if your spouse isn’t officially a business partner, you could be looking at splitting your business evenly down the middle – or at buying him or her out of ownership. The courts look for separate property to be kept separate, and this kind of working partnership can quickly negate the separate nature of your business.
• Without a prenuptial agreement in place, you will very likely spend considerably more money on your divorce. In fact, small business ownership can be the most complicated factor of divorce and can require the hiring of forensic accountants and valuation professionals. Untangling the financial web of business ownership can be extremely difficult, and it is very likely that your spouse will be awarded some degree of ownership that he or she will need to be compensated for.

Business ownership is complicated, and divorce is often messy. When you combine these factors, things become that much more difficult. A prenuptial agreement can help you keep your business separate (within the boundaries of the law), which can help make divorce less harrowing – but does not make divorce more likely.

A Prenup Does Not Doom Your Marriage

Many people are under the erroneous belief that even raising the specter of a prenuptial agreement dooms the marriage from the start, but nothing could be further from the truth. Couples who enter into prenuptial agreements are not more likely to end their marriages in divorce, but they do take a more proactive approach to the possibility of divorce.

Small Businesses Are Not Without Risk

The fact that you currently own a small business in no way guarantees that the business will be lucrative, increase in value, or even remain a going concern throughout your marriage. A prenup that addresses your small business also helps protect your spouse from the devastating losses that a business can accrue. Small businesses are also often closely associated with considerable debt. In other words, small businesses are often a gamble and a prenup can help you mitigate the risk to your spouse while helping to ensure that your business remains as separate as possible.

How a Prenup Can Help

There are a lot of misconceptions about prenups out there, but the following points help put the matter into better perspective:

There are some very specific ways that a prenuptial agreement can help you protect your small business in the event of a divorce, including:

• Establishing Value: A prenuptial agreement can pinpoint the value of your business at the time of your marriage. While any increase in value during your marriage may be subject to equitable distribution upon divorce, a prenup can identify its premarital value as your separate property.
• Addressing Specific Matters Related to Ownership: If your spouse will be working in your business, he or she will need to be compensated fairly to avoid ownership being implied. This is just one of the many considerations your prenup can address directly. A prenuptial agreement is a good time to carefully consider the logistics of your business and the possibility of divorce. Other issues to consider include where capital will come from in the event it is needed and, if it comes from marital funds, whether they will be paid back or whether a portion of the business will become marital property. Further, there is the matter of your spouse’s ancillary contributions. For example, if he or she cares for your home and children while you grow your business, this significant contribution must be addressed.
• Specifying How the Business Will Be Valued: Your prenup can also address how your business will be valued upon divorce. Business valuations often become a sticking point and can lead to the need for an intrusive and costly valuation process, which can even disrupt the course of business. Nailing down a valuation process that you both agree to ahead of time can save considerable time, money, and effort.
• Setting a Percentage of Ownership: Your prenup can specify the percentage of ownership your spouse will retain if your marriage ends in divorce. This means that regardless of how your marital property is divided by the court, the division of assets related to your business will be guided by this prenuptial provision.

Want to learn more about protecting your small business with a prenup? Please fill out our online form to request a free consultation with JustPrenups.