Protecting a business with a prenuptial agreement

On Behalf of | Jul 30, 2019 | High Asset Divorce

Prenuptial agreements were once quite rare, but they have been gaining in popularity in recent years. They are more common in states like Texas that have strict community property laws, and they are particularly useful when one of the parties involved owns a business. Community property laws require marital assets to be divided equally, which can lead to contentious negotiations over how much a business was worth when a couple married and how much its value increased during the marriage.

This is an important issue because assets owned before a marriage are considered separate property and are not subject to division. One way to address this issue is to draft a prenuptial agreement that puts a firm figure on the value of a business and also states how its value will be determined if the marriage ends in divorce. These documents can also stipulate how business assets and profits will be divided.

Business owners who would like to protect their interests in this way may be wise to ensure that their prenuptial agreements are essentially fair. Documents that are inherently inequitable are likely to be challenged in court, and judges may be reluctant to enforce them. Prenuptial agreements should not deny spouses business income even when they do not contribute directly. This is because courts have ruled that staying at home to raise children is a form of contribution as it allows entrepreneurs to work free of domestic responsibilities.

Disputes over prenuptial agreements are common in high asset divorces. Attorneys with experience in this area may seek to ensure that the prenuptial agreements they draft withstand judicial scrutiny by urging their clients to disclose all of their assets during negotiations and negotiate in good faith. To avoid claims that prenuptial agreements were signed under duress, the parties should be represented by separate counsel.