Yours, Mine And Ours Protect your business with a prenuptial agreement.

Would a prenuptial agreement have prevented a costly settlementin a recent divorce where the heir to a well-established familyenterprise put a large dent in the family's fortunes byagreeing to pay $23 million to his spouse, who was forced torelinquish her interests in the family concern?

No one can say, because Prince Charles and Princess Dianadidn't have a prenuptial agreement. But chances are if any ofQueen Elizabeth and Prince Philip's children remarry, they willbe urged to sign one.

Contentious divorces don't just upset empires; they can alsotopple long-established family businesses. That's why so manyheads of family businesses want their adult children to signprenuptial agreements.

This is a difficult subject to broach. "The spouse-to-becan see this as a proviso to full family acceptance, and it canchill relationships for years," says Tom Hubler, president ofHubler Family Business Consultants Inc. in Minneapolis. It also canharm the young couple's relationship.

"The [spouse-to-be] frequently perceives the [family's]son or daughter as more loyal to the family than to establishing aloving relationship," says Ross Nager, director of the ArthurAndersen Center for Family Business in Houston.

"Prenuptials are talked about more than they'reimplemented," adds Nager: People find it emotionally difficultto plan a divorce at the same time they plan a wedding.

Testing The Waters

Is something that unleashes such negative emotions worthcontemplating? Consultants say yes. "A prenuptial agreement isjust a tool. It's how the tool is used that determines itseffect," says Hubler.

In a divorce, the in-law spouse may seek a lump-sum settlementand go after the family member's shares. He or she may even ownshares. In either case, "it is not a good idea to keep adivorced [partner] as a partner in the business," saysNager.

If parents broach a prenuptial discussion when the first adultchild gets engaged, the perception is "You don't like myfiancé." That's why formulating a policy that appliesto all family members before the children even think of marriagemakes sense, says Jeff Wolfson, a partner specializing in familybusiness at Boston law firm Goulston & Storrs.

Even if no policy exists, the issue should be raised. Hublersuggests initiating the discussion with the engaged couple andframing it positively--not as "we" against"you," but as a way of satisfying both generations'interests and all parties' goals.

Hubler recommends starting with something like this:"Owning a family business is a unique situation, and we wantyou to know our views of stock ownership. This has nothing to dowith how much we love you--because we do and we couldn't behappier that you're part of the family. We want to doeverything possible to help you satisfy your own interests and movetoward your goals. The idea is to create a win-winsituation."

If the subject is first discussed by parents with their adultchild, which Nager says is more common than two couples sittingdown together, "the parent might say something like `Michael,we really love Jennifer, but there's something we need to talkabout--something that's important to the business and to thefamily.' "

Try these techniques to keep prenuptial discussions on aproductive path:

• Introduce the idea using a magazine or newspaper article thatpoints out the concept's weaknesses and strengths.

• Find another family business you know that also faced thissituation, and suggest your couple talk to the couple in thatbusiness.

• Use a neutral third party everyone trusts to facilitate thediscussions.

• If an agreement is reached, make sure each person isrepresented by separate counsel. The agreement must protect bothparties, provide full and fair disclosure of assets andliabilities, be entered into voluntarily, and be completelyunderstood by both people.

Alternate Solutions

Nager has seen several instances where prenuptials are discussedamong family members, but the subject goes no further because theadult child can't summon up the nerve to broach it with his orher intended. If an agreement can't be reached or thediscussion can't get off the ground, there are alternatives toensure that the stock stays in family hands.

Nager suggests a shareholder's agreement with a buy-sellprovision that clearly delineates the circumstances under whichstock is bought back from shareholders--divorce being one of them.He also suggests that if no stock has been distributed to the adultchildren yet, the parents should put the stock in trust for them."The agreement can be written so that in-laws have no rightsto trust assets," he explains.

Making plans to protect the business in the wake of a divorceshouldn't prevent you from valuing in-laws as a tremendousresource for the business. "Excluding in-laws from informationcreates problems," says Hubler. "Not only that, it robsthe business of the unique perspective spouses can bring."

Whatever approach is taken, Wolfson counsels, "the oldergeneration should always listen to and acknowledge the youngergeneration's concerns." That's sound advice for anyfamily business.

Contact Sources

Arthur Andersen Center for Family Business, 711Louisiana, #1300, Houston, TX 77002, (713) 237-2770;

Hubler Family Business Consultants Inc., (612) 375-0640,fax: (612) 342-2580.