Does Your Business Need a Prenup

Jun 17, 2021 | Prenuptial Agreements, Second Marriages

With more young adults venturing into entrepreneurship, it’s no surprise that handling business assets can cause some confusion when it comes to entering a marriage contract. Combine this with the fact that more millennials are getting married later in life when there’s more at stake, and you can see the need for bringing the business into the marriage planning process.

If you own your own business, small or large, you shouldn’t get married without considering a prenuptial agreement. No one expects to get divorced, but the reality is that many couples will not make it to “forever.” A divorce can be catastrophic to your business that you’ve spent years building. 

Throughout this article, I’ll discuss why a prenup is necessary for business owners who are becoming betrothed, what you need to include in your prenup, and some tips for having the conversation. 

Why Your Business Needs a Prenup

Now, I know that a lot of what I’ve said so far has been focused on people with businesses, but I’m a firm believer that everyone should consider a prenuptial agreement before they head to the altar. 

Even though divorce rates have been declining, it’s important to note that marriage rates have been declining, also. So, while the odds of getting divorced have dropped slightly over the last decade, a lot of that has to do with people getting married later in life or not getting married at all. 

If you’re tying the knot for the second or third time, the chances of divorce are even higher – closer to 75%. Most people don’t plan for divorce, but the reality is that it happens – a lot.

So, it would go against your very responsible, rational, and business-minded self to NOT consider a prenuptial agreement when it comes to your business.

Marriage and Business Ownership 

When you started building your business, the chances are that you weren’t thinking about how your future spouse might fit into the setup. Now that you’re older, wiser, and more successful, it’s crucial that you keep that business-minded brain of yours focused on everything you’ve worked so hard to accomplish up to this point.

When you say “I do,” you’re entering a contractual agreement with another adult. Don’t forget that your business is part of that agreement also. It’s kind of like marrying someone who has kids – “you’re not just marrying me, you’re marrying both of us” (or something like that). 

Even if you started your business decades before you met your future spouse, once you’re married, any growth and revenue from the business becomes marital property

Another concern is debt and other liabilities. When you get married, “what’s mine is yours, and what’s yours is mine.” Awww. However, let’s not forget that “yours” and “mine” also include your debt and my debt

So, let’s say that your future husband or wife racked up thousands of dollars worth of credit card debt, student loans, and other liabilities. Let’s also say that when he or she was much younger (and un-wiser), that love of your life defaulted on their debt. 

Fast forward to many years later when you guys are happily married, and the debt collector comes knocking. Your marital assets – including your business – may be considered as a means to pay back those debts, even if you get divorced!

Let’s not forget about businesses that have staff, employees, and other stakeholders. If your company becomes a pawn in divorce court, everyone will be affected. So, think of a prenup as protection for everyone who counts on you and your business for their livelihood. 

Starting a Business Together

Some of the best partnerships start as friendships, and some of the best partnerships evolve into business, romance, or both. Prenups don’t only apply when one of you creates a company; you need to consider setting out your expectations even if entrepreneurship is a common goal. 

According to Kay Koplovitz, the founder of the USA television network (and first female TV network president in history), a prenup for your business partnership is essential – and something that many young business venturers don’t think about.

According to Koplovitz, even when people start with the same ideas and grow them into reality together, those ideas often evolve into something different, with both partners having their own opinions. 

Imagine this dynamic combined with the already complex nature of romantic and marital relationships. It could be disastrous not to take this advice. 

A prenup for your business can lay out the most important things for your business’s continued success, even if your partnership dissolves. For example, what will happen if you and spouse have an unwavering disagreement on the direction of your company? What if you get an amazing offer from a bigger company, but one partner doesn’t want to sell? 

Most importantly – what happens to your business should your partnership (i.e., your marriage) dissolve? Or, more optimistically, what if the company dissolves, but your marriage remains intact? What will happen to the assets and intellectual property?

Considerations for Business in Your Prenup

In addition to the standard topics that you will cover in your prenuptial agreement, some considerations are specific to your business. These are issues that you should make sure you discuss with your hubby-to-be.

Remember, it’s not about you versus them, and it’s not about staking a claim on your business – it’s about protecting the company as its own entity. Think of it as a third party in your marriage, and the prenup represents its interests. 

  • Appreciation/depreciation – changes in the value of your business can be treated as a premarital asset. In fact, you should discuss all of your premarital assets that you would like to protect in case of divorce. 
  • Debt liability – Part of your prenuptial agreement should detail how you will handle debt that each spouse accrued prior to the marriage, as well as what will happen to debt that you acquire during your marriage. You should discuss how you’ll divide shared debt and each partner’s responsibilities. 
  • Buyout agreement – If your spouse is a partner in your business, you should discuss how you’ll handle it if one of you wishes to leave the business. This is especially important if you start or grow your business together or if you were business partners before marriage. 

How to Discuss a Prenuptial Agreement

The prenup talk is certainly not romantic or sexy, but it’s one of those things that you just need to do before you get married. It’s really no different than discussing religion, how you want to raise kids (or not), and financial matters, in general.

There are some real benefits to having these conversations, and there is even research to support the idea that prenups lead to stronger marriages and more amicable divorces.

The ability to, as the celebs used to call it, “uncouple” is dependent on your ability to leave the marriage without setting out to destroy one another. This is essential if your goal is to maintain your business after the marriage. 

Keep these tips in mind to help your “p-word talk” go smoothly: 

  1. Don’t wait. Have this discussion as early as possible. Don’t wait until you’re packing your honeymoon bag to bring up how you’ll handle your marriage ending. If possible, start the discussion as soon as your relationship starts to get serious. 
  2. Make sure it’s a two-way conversation. Ask your partner how they’d like things to be handled if your marriage ends. Find out what’s important to them, and make sure that you don’t toss their feelings aside, even if you guys disagree at first.
  3. It’s about more than divorce. A good way to start the talk is a gentle reminder that all marriages end, eventually. Whether it’s due to death or divorce, your prenup is about how both of your interests will be represented and protected when your marriage is over.
  4. Prepare and answer questions together. Use HelloPrenup’s “Gettin’ Hitched Checklist” to cover all of the uncomfortable topics together. When you answer all the tough questions as a couple, not only do you learn a lot about each other, but you learn that there is way more to consider than either of you probably realized.
  5. Create the agreement together. You can show your sweetie that the prenup isn’t about you versus them, and it’s not about having control or power over the other party. Using HelloPrenup’s hassle-free platform, you and your partner will be able to work on the document together. This makes it a true “agreement” where you both have equal input and participation.

Final Thoughts

If you’re a boss who started a business from the ground up, you know that it’s filled with your blood, sweat, and tears. Up until this point, you’ve probably felt like you’d do anything to protect it. Getting married doesn’t change any of that! 

A prenuptial agreement is a legal document that protects the rights and interests of you, your spouse, and your business. Because, let’s face it – if you’re like most business owners, your company is like your child. And who wouldn’t want to protect that?

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All content provided on this blog is for informational purposes only. HelloPrenup, LLC (“HelloPrenup”) makes no representations as to the accuracy or completeness of any information on this site. HelloPrenup will not be liable for any errors or omissions in this information nor for the availability of this information. These terms and conditions of use are subject to change at any time and without notice. HelloPrenup provides a platform for contract related self-help. The information provided by HelloPrenup along with the content on our website related to legal matters (“Information”) is provided for your private use and does not constitute legal advice. We do not review any information you provide us for legal accuracy or sufficiency, draw legal conclusions, provide opinions about your selection of forms, or apply the law to the facts of your situation. If you need legal advice for a specific problem, you should consult with a licensed attorney. Neither HelloPrenup nor any information provided by Hello Prenup is a substitute for legal advice from a qualified attorney licensed to practice in an appropriate jurisdiction.

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