If you own a business and plan to get married, you should consider a prenuptial agreement to protect your interest in the business if your marriage fails. Even if your spouse will join the business as a partner or an employee, you need a prenuptial agreement that says what will happen to the company and its assets should a split occur.
In a divorce, your business is an asset subject to valuation as part of your separation agreement. If your spouse has done anything to contribute to or advance the business during your marriage, it could be declared a marital asset and subject to equitable division as part of the divorce under North Carolina law. You could be forced to sell your business or buy out your estranged spouse’s interest.
At Charles R. Ullman Associates, we advise small business owners who are headed toward marriage that there are reasons to establish a prenuptial agreement in North Carolina. Chief among them is protecting an existing business that you will bring into the marriage. If the businesses prosper due to your hard work and smarts, as you naturally expect, without a prenup you risk a greater loss with each passing year.
How to Structure a Prenup to Protect Your Business
A prenuptial agreement is a contract between a couple about to be married that sets out the rules that will govern their assets, debts, income, and expenses if the marriage dissolves. A prenup allows each spouse to protect the property they owned and brought separately into the marriage, such as a family business or a young entrepreneur’s start-up.
In a divorce, North Carolina law requires that a couple’s marital assets be divided equitably. Marital assets are typically those acquired while married, but an entity like a business changes over time. A spouse might make a claim to part of a business brought into the marriage if they contributed to it in any way, from working for it as an employee to allowing marital funds to be invested into the company.
A prenuptial agreement can head off potential claims by spelling out how the business will be held in relation to the marriage.
Issues That Can Be Addressed In A Prenuptial Agreement
- Establish the business’s value as of the marriage date. This ensures that any business value subject to equitable division later can be limited to what was gained during the marriage and does not include what you built earlier on your own.
- Establish fair compensation for the non-owner spouse. A spouse with no plans to work in the business at the start of the marriage might think differently at some point down the road. By establishing a fair rate of pay ahead of time, such as a rate based on identifiable market factors, the wages are less likely to be attacked as too low and therefore leaving money owed in a divorce.
- Recognize in-kind contributions. Set out an agreement as to how you will value your spouse’s indirect contributions if, for example, he or she stays home to raise the children so that you are able to operate and grow your business.
- Establish a business valuation method in case of divorce. There are multiple ways to arrive at the value of a business. Specifying the valuation method that will be used can save time and money if the need arises.
- Grant a percentage of the business to your spouse. You could just go ahead and say, regardless of contribution or participation, your spouse will get a certain percentage of your business if you divorce. Doing so should keep the business separate from asset division considerations. This can be particularly beneficial for protecting an established family business brought to a marriage.
- State rights to appreciation or depreciation of the business from the date of marriage. Decide how your spouse will share in the fortunes of your company and, if necessary, whether and how they’ll bear the burden of loss. This can be based on an agreement as to how much time, effort, and money the non-owning spouse will or will not put into the business. A provision may state that you and your spouse agree to not assume each other’s debts throughout the marriage.
Legal Support for Business Owners Beyond a Prenup
A prenuptial agreement needs to be fair, straightforward, and signed without coercion to be valid. You and your intended spouse should have separate attorneys to guard against a conflict of interest. If you’re already married, you can set down a similar contract in a postnuptial agreement. However, some courts put less stock in postnuptial agreement if they are challenged on the theory that people have less power to bargain once they are married.
If you draft an agreement that excludes your spouse from having equity in your business, it is vital that he or she remains fully detached from business operations or your divorcing spouse could claim a right to a portion of the assets.
Business earnings should remain in business accounts and spent on legitimate business expenditures instead of for personal use. If you use business assets for personal expenses or gain, they may be considered marital assets and added to the total marital wealth you must divide with your spouse in a divorce.
If you have business partners, you might establish agreements or articles of association that require the partners to have prenuptial agreements or that establish sell-out requirements in case of a partner’s divorce.
Contact Our N.C. Business Divorce Attorneys
If you own a business, it is likely your most valuable asset as well as your source of income. It needs to be protected in a divorce. Conversely, if you have an interest in a spouse’s business, whether legally expressed or unofficially earned, you have certain rights. At Charles R. Ullman & Associates in Raleigh, N.C., our divorce attorneys understand how business owners may complicate the division of assets in a couple’s divorce. We also know how to ensure that divorce does not irreversibly damage a business.
Contact our firm online or at (919) 263-2873 today to set up a consultation about how we can protect your business or your business interests before, during, and after marriage.