Managing your love life and business life can be challenging for anyone -- especially when the two are intertwined.
In June, singer Mary J. Blige was ordered by the Superior Court of California -- Los Angeles -- to pay her ex-husband Martin "Kendu" Isaacs -- who was also her ex-manager -- $30,000 a month in temporary spousal support. Although this sum was significantly lower than the reported original demand of $129,319 per month, Blige was also ordered to pay support retroactively, and attorney fees.
If you're an entrepreneur, investor or company owner intertwined in a business endeavor with your significant other, this case may be sounding an alarm.
And you're justified in feeling this way: Regardless of the size of your business, tying the knot changes more than the legal logistics of your personal life; it can also affect your business. Consulting with an attorney and signing a pre-nuptial agreement, or at least learning what factors can impact spousal support could be one of the most cost-efficient and reliable steps you can take to protect your business and yourself.
Pre-nuptial agreements and your business
In the Blige case, in large part, she is the business. And as she has pointed out, she built a successful brand prior to this marriage and prior to her spouse acting as her manager. This scenario, in which one spouse built a business prior to the other spouse joining him/her in business and in marriage, is a familiar one to many.
Still, the particular business in question -- a platinum-selling R&B artist -- probably isn't. There are lessons to be learned from this celebrity case for more traditional business owners. First and foremost? The pre-nup.
Historically, pre-nuptial agreements have been associated with the anticipation of a failed marriage; but from a family-lawyer perspective, that's not necessarily an accurate perception. While these agreements may not be right for everyone, they're at least worth a discussion by any couple, particularly when a business is involved, to determine whether a pre-nup is right for them.
Statutes regarding the distribution of marital property are fairly complex and subject to interpretation. Before entering into marriage (often the biggest partnership of all), it's wise for you to find out what your state statutes would require were there a separation. You should then define (or create) the terms you want applied.
What's smart here is knowing, planning and acting with intention ahead of the fact rather than acting on the unknown or making decisions muddied with the emotions that accompany the dissolution of the relationship.
Whether you're a new entrepreneur or a seasoned business owner getting ready for marriage, it's important to know what constitutes "ownership" of the business. In the family law arena, ownership is not always dictated by title. In many states, like North Carolina where my firm is headquartered, the fact that one party is not a title owner of an asset does not mean that he or she does not have an ownership interest in that asset.
While one spouse may own 100 percent of a business and operate it every day, the other spouse may still have a marital interest in that business depending on when it was started, whether it has grown actively or passively during the marriage, and so on.
Pre-nuptial agreements allow both parties to define, in advance, how they want to handle the business, as well as other assets, debts, right and obligations, in the event of a divorce. A well-drafted pre-nuptial agreement can save time and money on litigation costs during a divorce and may even prevent a battle over ownership in the long run.
An airtight pre-nup
Just as when you draft a business contract, you should use due diligence in creating a pre-nuptial agreement, or there will be consequences. Drafting a pre-nup without each spouse having his or her own counsel, for instance, may weaken the enforceability of the agreement.
Pre-nuptial agreements also should be executed voluntarily and without coercion or duress. So, springing one on your fiance the day before the wedding may come back to haunt you in the event of a divorce. These are just a few of the ways that pre-nuptial agreements are challenged.
That takes us back to the case in question. News coverage of the Blige case shows the singer's assertion that they drew up the pre-nup on December 5, 2003, two days prior to their wedding. Sound dicey? Apparently so, as her ex-husband asked the judge to disregard that pre-nup, since he felt that he did not understand the document when he signed it.
Sound shaky? Maybe -- but not unusual. When pursuing a pre-nuptial agreement with your intended, do so well before the wedding and make sure each party has an experienced family law attorney walk him or her through the agreement, ensuring that all points are understood so that you can both close the door on any legal arguments as to its enforceability should a separation occur.
If you're married and in business together, and don't have a pre-nup, before you consider divorce, I recommend that you understand the factors impacting spousal support. These factors may vary among state but often include:
Income versus assets: In Blige's case, there may be additional assets that produce income that could offset the spousal support obligation. For example, an investment portfolio that generates income would be considered when the court distributes assets and determines what each party's needs and expenses may be.
Duration of the marriage: In some states, there may be trends that are followed when the court determines the duration of alimony. Here in North Carolina, there is a trend for spousal support to be paid to the dependent spouse for half the years of the marriage. It is up to counsel to advocate why this duration exceeds (or is less than) what is appropriate, given the circumstances of the case.
Adultery: Does adultery impact an alimony award? In North Carolina, it might. In fact, this type of behavior might bar a spouse from receiving support at all, even if that spouse needed the money to keep a roof over his/her head. Be sure to check your state's statutes!
A silver lining: Spousal support is tax deductible to the party who pays and is taxable income to the party receiving. Then, once the recipient spouse has moved on, some states (including North Carolina) allow alimony to terminate. So, consider the big picture when negotiating or arguing what is best for yourself.