Prenuptial agreements have long held a poor reputation in marriages, as they are usually seen as a lack of trust with one’s partner. But millennials have been leading the movement to change the perspective on prenups.
Discussing financial matters before marriage is becoming more commonplace. A central reason for this is to protect individual assets one brings to the marriage, businesses included.
Finding love while being busy running a successful business is a fantastic feat in itself. Still, if you want to keep protecting the company you have worked so hard to build, it requires a sober assessment of the variables that come with getting married. This means being upfront about safeguarding your assets even before marriage.
Can Separation Cause Problems for a Business?
Of course, no one goes into a marriage intending to eventually get a divorce. But when you consider your business’s longevity, you should understand the consequences of such an occurrence.
Your business is an asset. That means that in the event of a divorce, it will be among the things that will be considered when financial settlements are discussed.
You will risk losing a significant portion of your business ownership if you do not prepare for the unexpected. A divorce could leave you with less control over and fewer earnings from your business operations, which could compromise the overall quality of your goods and services.
Although often viewed as a killer of marriages, prenups allow you and your future spouse to lay your personal assets on the table, particularly your business, and discuss their importance to you. When you and your partner have a sober talk about how potential conflicts could adversely affect your assets in the future, it gives you more room to trust each other.
How Can a Prenup Protect My Business?
Aside from the communication it allows you and your future spouse to have, prenups also offer protections for your business, among other assets.
1. It gives you greater control over the value of your business
When you own your business, you can establish the value of your business before the marriage and secure that through a prenup. This protects it from distribution should a divorce occur later on.
However, note that this established value does not take into account the amount it may earn during the marriage. Its incurred value after the date of marriage could be subject to division later on.
2. It gives you a say on the amount your spouse will get if you get divorced
A prenup allows you to dictate the percentage that your spouse will receive of your business’s value. If a divorce happens, your spouse will receive this agreed-upon percentage even if your other assets are divided differently.
Additionally, since your business will either gain or lose some value from the date you got married, a prenup also lets you be transparent about how your spouse will share in the profits or losses. Note that whatever they receive should be consistent with the number of contributions they have made to the business’ success.
Before you get married, discuss what role your spouse is going to play in your business. Will they take an active approach, or will they be largely uninvolved? If they decide to work in the business, ensure that they receive fair compensation for their contributions.
Knowing that you have compensated your spouse reasonably avoids issues in the event of a divorce, where the spouse demands a higher share of the profits due to the work they put in. When these are acknowledged and clarified beforehand, you both will have a simpler time navigating such situations.
3. It protects you from accumulating more debt
In most states, the debt you or your spouse owe is solely the responsibility of the person who incurred the debt, but this is not always the case. There are states where the debts you incur after marriage are considered a shared responsibility between both parties. If you get divorced, these debts could also be divided between you both.
By adding a provision in your prenup, you can avoid incurring shared debt if you separate. This protects you from taking on your spouse’s debts, which can adversely affect your business.
Communicate with Your Spouse
A prenuptial agreement is not just about protecting your business while having one does accomplish that. It is also an opportunity to talk through your financial goals and be honest with each other. These open conversations allow you to work together to ensure that you achieve financial stability in the future, no matter what happens.