The importance of a prenuptial agreement for business owners
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The importance of a prenuptial agreement for business owners

| May 7, 2020 | Firm News |

When people in Michigan who own a business get married, they may want to create a prenuptial agreement that outlines how the business will be valuated and divided in case the marriage ends in divorce. By establishing the company’s worth before the marriage, the prenup can set that value apart for the individual who owns the business. The non-owning spouse will then only be entitled to the amount the company appreciates after the marriage.

Determining the value of a business can be disruptive and time-consuming, so couples may also want to establish a plan for how this process will occur in case of divorce. What portion of the company will go to the non-owning spouse may depend on several factors. For example, a non-titled spouse who worked for the business and was paid a market salary might have a lesser claim on the company than someone who was not paid a market rate. If the spouse will not work for the company but will stay home and raise the children, he or she may want to decide the value of this contribution.

The prenup might need to account for the fact that marital assets could be used to fund the business. Furthermore, if the owner accepts a lower salary to retain more funds in the business, but the result is depleted family savings, this may be factored in too.

Prenuptial agreements should be prepared with ample time for each person to review the document and get adequate counsel. Otherwise, they could be challenged because one spouse was coerced or didn’t fully understand the provisions. Prenups can only address issues of property division and cannot handle matters relating to child custody or support. Parents who have a prenup will still need to negotiate an agreement regarding custody and support or go to court.