How to protect the business during marriage

People often think of marriage more in terms of love, romance and family and less as a legal contract that touches on property, finances and sometimes business. The realistic business owner will of course understand the importance of a contract and how essential it is to separate love from more practical financial matters in order to preserve both for the future.

That is why many people in Oakland and around the country are increasingly turning to a prenuptial agreement before marriage in order to keep valuable assets from ending up in court during a divorce proceeding. This includes not only valuable separate property such as a business, but also future assets in the form of increased valuation of the business, salary, dividends or stock.

When protecting future assets in a prenup, it is important to use specific language in describing future actions such as current or future ownership interests, anticipated income or growth, the role, if any, of the spouse as a shareholder or employee, or the assignment of a percentage of the value of the interest in the company to the spouse.

California statutes for prenuptial agreements

The guiding statute detailing the requirements for prenuptial agreements is the California Premarital Agreement Act (UPAA), which mandates that both parties enter into the agreement prior to marriage and outlines the protected property allowable:

  • Income and earnings
  • Financial interests
  • Present and future assets
  • Real estate
  • Debt

A valid prenup is a written contract freely entered into, signed by both parties and notarized without evidence or coercion and with full knowledge of the property and financial obligations of the other party. Both parties must seek counsel at least seven days before signing.

How the business is at risk during divorce

Without a pre- or postnuptial, a business may end up on the chopping block to pay for any debt that results from the division of marital property. The other spouse’s involvement with the business as a partner, a shareholder, or an investor can make it vulnerable during divorce. An increase in its value over the course of the marriage may entitle the other spouse to a share of the profits.

Not separating the business from the marriage can also impact business partners, employees and the client base, affecting the operations of the company. Above all, having a pragmatic approach to marriage at the beginning will prevent heartache on both fronts later on.