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Divorce-Proof Your Business

Getting hitched? Before I do's turn to I don'ts, make sure your biz is protected. Six things to consider for your prenup.
October 7, 2005

Though it may seem unromantic, couples that plan to exchange marriage vows ought to consider implementing a prenuptial agreement long before saying "I do."

While there was a time when only the wealthy executed such agreements, now more and more couples--especially those who own businesses, have been married before or have a blended family structure--need to evaluate the pros and cons of a prenuptial agreement as part of their wedding plans.

In essence, a prenuptial (or premarital) agreement is nothing more than a written contract signed by two people before they're married. It can be used to accomplish many legal and financial objectives, but in general, couples use it to protect separate property (a family business, for instance), support an estate plan, define what's marital or community property, reduce conflicts and save money in the event of divorce, clarify special arrangements, and establish procedures and ground rules for deciding future events.

Typically, the agreement spells out exactly what each person brings to the marriage in terms of what they own (assets) and what they owe (liabilities), and then details how those assets and liabilities will be disposed of after separation, divorce or death. It might also detail how any assets and liabilities acquired during a marriage (say, through an inheritance) will be disposed of after separation, divorce or death.

In short, a prenuptial agreement can help ensure there's an orderly process that will take place if a marriage ends. That order can turn to chaos, however, if certain conditions aren't met. There are a few that are essential to comply with, if you want your agreement to fulfill its intended purpose. Of course, meeting the conditions I've outlined below doesn't guarantee an agreement won't be challenged by an unhappy spouse or struck down in court. But it can go a long way toward making sure there's marital bliss in the short term.