Marriage is more than just an act of love; it is a legal contract that serves to combine one’s assets with their spouse’s assets. There are times when certain assets are best left separate. A prime example is a family business. Those who have a family business and wish to keep the business separate from the marriage can benefit from the use of a pre or postnuptial agreement.
How do pre and post-nuptial agreements work?
Pre-nuptial agreements are contracts that both parties sign before marriage. If the parties sign after marriage, it is a post-nuptial agreement. Both serve to outline the division of assets in the event of a divorce. You can include a family business in these agreements to help better ensure clarity and protection for the business owner.
The scope of the agreement is defined by the language used to create the agreement. It may include terms for asset protection. When the asset is a family business, it is important to clearly define the business as separate property to mitigate the risk a court would consider it marital property. It is also important to keep the asset separate throughout the marriage. Do not commingle it with marital funds. This will weaken the argument that it is separate property and could put the business at risk.
Will the agreement survive a legal challenge?
When drafting a pre or post-nuptial agreement, the business owner must consider several legal factors to help better ensure the agreement’s enforceability. Each state has its own requirements, which generally include:
- Full disclosure: Both parties must fully disclose their assets and liabilities. Failure to do so can render the agreement invalid.
- Independent legal advice: Each spouse should have their own attorney review the document to help better ensure they understand its terms.
- Fairness and voluntariness: The agreement must be fair and both parties must enter into the agreement voluntarily. Coercion or duress can invalidate the contract.
You can reduce the risk of allegations that one party was under duress by making sure the prenuptial agreement is signed well before the wedding date. These considerations help increase the likelihood that the agreement stands up in court and effectively protects the business.
Including a family business in a pre or post-nuptial agreement is an important step for business owners entering marriage. By clearly defining the business’s status and addressing key legal considerations, these agreements can safeguard the business’s future. While the conversation may seem difficult, the protection it offers can prove invaluable in preserving the business’s integrity and the owner’s peace of mind while helping the happy couple to move forward with their future while knowing their relationship should not impact the family business.