Breaking up is hard to do--especially when that breakup can jeopardize business assets. Considering that more than 20 million U.S. adults are divorced, and that 41 states have equitable distribution laws (leaving division of marital assets up to the courts), it's a real possibility. The term "marital assets" no longer just conjures up images of houses, cars and savings accounts. It can include your business, which is why more people are including their businesses in prenuptial agreements.
What can happen if you don't? Sheila Ginsberg Riesel, a matrimonial law expert with Blank Rome LLP in New York City, recalls the case of a man who inherited the family business. Though the business was his separate property before the marriage, the interest the business earned during the marriage was considered a marital asset. Without a prenup, this entrepreneur's ex-wife was entitled to half of what the business was worth at the time of the divorce--which meant he had to buy his ex-wife's interest back from her to keep his business up and running.
Prenup agreements, while not always an easy topic to broach, can help protect entrepreneurs from these types of ugly and potentially very costly battles later, should a marriage end. Though laws vary from state to state, Ginsberg Riesel suggests that entrepreneurs carve the pre-existing business and its appreciation out of marital assets in a formal prenup.
Attorney Jay A. Frank, with Aronberg Goldgehn Davis & Garmisa in Chicago, also notes that to protect a prenup from being challenged later, both parties should have separate counsel. Full disclosure of all assets is essential, as is preparing and signing the agreements well before the wedding-to prevent claims of signing under duress. Be as specific as possible, and tailor the agreement to your situation, says Frank. "Don't just default to the boilerplate statements."
Most important, don't gamble with your business by drafting the agreement yourself. "Involve professionals," cautions Frank. "Many times, we'll have a client come in, and the deed's already done. It's much easier if you see the professional first."
This story appears in the September 2003 issue of Entrepreneur. Subscribe »
