With yet another celebrity divorce making headlines, this time with Joe Jonas and Sophie Turner, there is more buzz on Prenuptial Agreements, as it has been reported that Joe and Sophie have one in effect. Entering into a Prenuptial Agreement is common for celebrities, because they often have a great deal of wealth that they want to protect. Similarly, because of their high income, many will want to limit the alimony awarded to their spouse after a divorce. Last, but not least, celebrities are highly motivated to achieve a prompt resolution in order to avoid their case playing out in the court system – with all the negative publicity that may entail.
So we know that the rich and famous are well advised to utilize Prenuptial Agreements for all of these reasons, but how can you decide if a Prenup is necessary for you?
As is many times the case in legal questions, the best answer is, “it depends”. Prenuptial Agreements are powerful instruments which can protect your assets and help avoid conflicts in the event of a divorce. If you are bringing significant assets into the marriage, or expect to inherit significant assets someday, if you have children from a previous relationship, or if, for any number of reasons, you are concerned to ensure a specific resolution in case of a breakup, a Prenuptial Agreement can provide peace of mind.
When a business owner gets divorced, the business is often the major asset subject to distribution. Accordingly, the business and its’ ongoing operations are almost always implicated in the divorce. In most cases that I see, the business is a small business with one owner or a few owners. In the best case scenario, the business owners have planned in advance for situations that arise in a divorce through a Shareholders Agreement, Prenuptial Agreements and/or Postnuptial Agreements. Hopefully, the parties’ respective family law and business law attorneys can work together to best protect the business owner to ensure as smooth a transition as possible. Hopefully, the relevant agreements have set forth a valuation formula which can be upheld at law for purposes of the divorce. Counsel can also work together to insure that income is clearly defined and reported so that support is less contentious. Additionally, advance planning can be used to address the below issues so that a divorce does not mean the end to the business. While advance planning is not a guarantee, it will provide additional protections to the business owner.
A divorce can impact internal and external business relationships, support (between spouses and child support), equitable distribution (division of marital property) and business control. In terms of business relationships, banking relationships can come into play, especially if the spouse is a personal guarantee of the loan. It is often not easy or possible to have the spouse removed from the guarantee. The spouse may also have a role in the business and it may not be feasible for them to remain involved. For example, in cases where the spouse is client facing, a delicate balance will be necessary to transition the spouse out of the business without negatively impacting the business. This can be a challenge if the divorce is acrimonious. Finally, the roles of the parties within the business may create sustainability issues going forward. In some cases, one spouse has a particular talent (i.e. software development, marketing creativity or scientific knowledge) which cannot be easily replaced and without which the business may not be able to survive. Such issues impact valuation but also succession and strategy on distribution of assets.
As for support, when a business owner is a party to a support action, whether for support for a spouse or for a child, calculating income can be challenging. The definition of income for purposes of determining support is very broad and is not the same as taxable income. There can be practical issues in obtaining information and documents which reflect the income. Legal issues can also arise, such as whether income is being reported or if the court can compel income or retained earnings to be distributed from the business to the owner to pay support.
In equitable distribution, the business must be valued so that division of the assets can occur. Business control also comes into play. It is unusual for parties to retain joint ownership or for the non-business owner spouse to receive shares of the business so creativity and/or structured payments are often necessary unless there is enough cash reserved for an outright payment. The payout can cause a financial strain for the business.
To best protect a business in the event of a divorce of the business owner, it is advisable for business owners to have advance planning through the mechanisms listed above. While not a guarantee, it will place the business owner spouse in a much better position than ignoring these issues all together.
The decision to remarry is not made lightly. Marrying a second time is oftentimes very different from a first marriage. Parties involved in a second marriage are likely to have assets and children from a prior relationship. Recalling the time, money and emotional energy spent during a divorce, friends and advisors might mention a prenuptial agreement. A well-drafted prenuptial agreement can protect these hard-earned valuables.
Is a prenuptial agreement right for you? It is if you want to avoid the aggravation and expense of litigating your future. Protect yourself.
A prenuptial agreement is a contract between persons who plan to marry. The agreement addresses how property is to be divided or the terms of support/alimony in the event of a divorce or the death of one of the parties. Executing an agreement before being married in order to address what will occur in the event of divorce is not romantic, but it is smart.
What can be expected? What needs to be done?
Once it is decided that a prenuptial agreement is appropriate, the first step is to contact an attorney well in advance of a wedding date. Presenting a prenuptial agreement to one’s fiancée on the eve of a wedding adds unnecessary pressure to an already stressful time.
Anticipate providing your attorney documentation of current assets, liabilities and sources of income. To ensure that an agreement's validity cannot be challenged at later date, the parties must disclose their current financial status. Prepare an outline of assets and liabilities and bring recent tax returns to your meeting to help make the process easier.