Why Rupert Murdoch's Divorce Is a Wakeup Call for Business Owners Here's a look at three common scenarios an entrepreneur may face and possible solutions for divorce-proofing your company.
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With the announcement that media mogul Rupert Murdoch filed for divorce from his third wife, Wendi Deng, many are wondering how much she will benefit from Murdoch's estimated $11.2 billion net worth and whether it will affect his company, News Corp.
The questions facing Murdoch, the 82-year-old chief executive, should be a wakeup call for small-business owners. It remains unclear whether Deng, 44, signed a prenuptial agreement or, if she did, what it specifies. Unless you are already business partners with your spouse or spouse-to-be, it is important to understand how your business assets -- and potentially your business partners -- could be affected by a marital split, as Murdoch surely knows.
Related: How to Ask Your Partner for a Prenup
So what's an entrepreneur to do to protect a business in the unlikely case of divorce? Here are three scenarios and possible solutions.
Scenario 1: You're getting married and you own a business.
Get a prenuptial agreement, says Michael Gilden, a partner at law firm Kopelwitz Ostrow in Fort Lauderdale, Fla., who is board certified in marital and family law. He suggests finding a lawyer who specializes in family law, keeping in mind that laws vary by state. For example, nine states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- have community property laws where, in a divorce, all assets are divided equally unless you have a prenup. In Alaska, couples can create community property by written agreement. The rest of the states fall under equitable distribution law, which means assets are distributed fairly (but not necessarily equally) according to income, circumstances leading up to the divorce and other factors.
In equitable distribution states like Florida, for example, a prenup should outline how the business would be divided based on how much each spouse is involved. Otherwise, during a divorce your spouse could fully benefit from the business's growth, even if you are the only person in the marriage actively involved in the company. In community property states, a prenup will supersede the state's law, allowing you to pre-designate who gets what in the case of divorce.
Gilden suggests starting the prenup process at least six months before your wedding date, so the other person cannot later claim the prenup was signed under duress. While both sides should have their own attorney, if you're the one asking for the prenup, Gilden suggests paying for your spouse's attorney as a good-faith effort. Expect to experience "an abundance of financial disclosures during the process to protect the validity of the prenup," he adds. Both sides need to be fully aware of the business's assets, liabilities and earning possibilities. "You want to be as upfront as possible."
Scenario 2: You're already married and plan to start a business.
In this case, speak with a lawyer about what's called a post-nuptial agreement if you want to keep the business from being a potential factor in a divorce, says Gilden. A postnup -- also known as a post-marital contract -- works exactly like a prenup does, except that it is done after the marriage.
In a divorce, a postnup will help you avoid forfeiting a significant piece of your business to your ex. A cautionary tale: Tereson Dupuy launched her online cloth-diaper business FuzziBunz three years into her marriage. The marriage unraveled in 2005, and the Louisiana-based business was considered a joint marital asset. It took a large lump sum and $15,000-a-month payments to her ex over many years to regain ownership.
While a postnup may be a smart financial move, be aware that initiating one could put a strain on the marriage, Gilden says. He suggests explaining the benefits to the business and emphasizing that it is no way meant to hurt or shortchange your spouse.
Scenario 3: You're a business owner who got married without a prenup.
You may consider a postnup in this scenario for several reasons. Perhaps you got married young and never anticipated your small business would later become a multi-million-dollar operation, where many employees now count on its stability. Alternately, you may bring in new business partners or investors who want their financial interests protected.
If you go this route, Gilden warns that it could get contentious. Like a prenup, you would need to disclose everything about your financial background and your business, which may include details you had not previously shared with your spouse. And, unlike with a prenup, the business owner has less leverage, since you chose to get married without one.
Clearly, the best-case scenario is to take care of this prenuptial business before you get married. "I always say to my clients that a prenup may be the most important document you are signing, but hopefully it will be the most useless," says Gilden. "If you have a long happy marriage, you never have to see the prenup again."