Written by Jonathan Breeden
Nobody wants to prepare for divorce — especially before your marriage has even begun. However, you have much at stake if you own and operate a successful business. A divorce could quickly take away a large portion of your life’s work.
You must ensure your business assets remain safe in the event of a divorce with a prenuptial agreement. This simple document could protect your business down the road and prevent a contentious divorce that drains your time and money.
Any assets you and your spouse acquire during marriage are consideredmarital property and subject to North Carolina’s equitable distribution laws. If your business started before marriage, the assets you acquired and the value of your business at that time will not be considered marital property.
However, if your business increases in value during the marriage, that increased percentage will be split between you and your spouse. A prenuptial agreement allows you to set guidelines for how your business will be shared between you and your spouse in the event of a divorce. This prevents the court from intervening and carving up your business according to equitable distribution.
There are several things to consider when creating your prenuptial agreement to protect your business, which include the following:
Your business’s value and the assets acquired before marriage are solely yours and not subject to distribution. So, documentation proving your business’s valuation before marriage ensures that you keep what you earned.
Knowing what your business was worth at the time of your marriage also allows you to accurately determine how much it has grown and what assets are considered marital property.
Another way to bypass North Carolina’s equitable distribution laws is to establish what percentage of the business your spouse will own after marriage. For example, if you agree that your spouse will own 20% of the company, that is all they’re entitled to if the marriage ends.
If your spouse works for your business, they may claim after marriage that they were not fairly compensated. To avoid this scenario, you should establish how your spouse will be compensated for their contribution to the company. If they receive market-value compensation for their work, they can’t demand more pay or back pay from the company during a divorce.
You may already know that you experience many ups and downs when running a business. Outlining how your spouse will share in the appreciation and depreciation of your business is another critical item to address in your prenuptial agreement. This often depends on your spouse’s contribution to the business.You might state that your spouse is equally responsible for the amount of debt the business accrues andentitled to the profit it gains.
Just because your spouse does not work for your company doesn’t mean they didn’t indirectly contribute to its success. They might have stayed home to care for the children while you grew the business. This factor could greatly influence your spouse’s stake in the company. If you don’t address this early on, your spouse might have a higher percentage of the business in the event of a divorce.
As a business owner, you assess risks to your company daily; divorce is one threat you should prepare for. When you and your spouse agree on all the terms of a prenuptial agreement and clarify how assets will be distributed, you can rest easy knowing your business won’t slip through your fingers.