This piece is presented by Woods, Fuller, Shultz & Smith PC.

No one wants to entertain the idea of divorce, especially as they plan for the start of their marriage. While divorce rates have been falling in recent years, almost one-third of American marriages still end in divorce. With this in mind, business owners need to consider the implications of their personal life on the health of their business. Managing risk is an important part of running a successful business, and a prenuptial agreement can be a powerful tool.

What is a prenuptial agreement?

A “prenup” is a contract entered into by a couple before marriage. The contract can broadly address many aspects of a relationship, particularly provisions for division of property.

There are several important business considerations that should be reviewed as part of your prenuptial planning:

Separate versus marital property

• Separate property is owned by each party before the marriage. Marital property is all other property acquired during the marriage. Including your business as separate property in a prenuptial agreement will protect the appreciated value in the event of divorce, if properly worded.

Debt liability

• Prenups can also address separate and marital debt. It is vital to include provisions identifying what qualifies as a shared marital debt, how separate and marital debt will be divided in the event of death or divorce, and agreements on assuming or paying each other’s debt.

Domestic or foreign asset protection trust

• Placing your separate property — including your business — into a trust transfers ownership, essentially eliminating the issue. The trust owns the separate property. A prenup may still be desirable to outline other personal and financial considerations.

Postnuptial agreement

• A postnuptial agreement is similar to a prenuptial contract but is signed after the marriage and may be less enforceable.

Guidelines exist to help craft fair and equitable prenuptial agreements and to increase their enforceability in the event of a divorce.

Business owners dedicate enumerable resources, time and energy to ensure the success of their company. A prenuptial agreement can help protect that investment.

To learn more about prenuptial agreements, contact family law attorneys Shelly A. Munson or Kristine K. O’Connell at woodsfuller.com.