Know the Law: Do I need a prenup?
Q. My brother and I own a business together. Now that I am engaged to be married, my brother wants me to get a “prenup” to make sure the business stays in the family. Do I need a legal document?
A: A prenuptial agreement is an asset protection tool which every business owner should consider.
Stock or any other interest in a family business owned by one spouse is marital property, and absent a valid prenuptial agreement would technically be subject to division pursuant to New Hampshire’s divorce statutes.
As a practical matter it is unlikely that a court would order one spouse to transfer shares in a closely held business to the other spouse. Although the court certainly has the authority to do so, family court judges are mindful that post-divorce joint ownership of a business venture is unlikely to succeed. Accordingly, the court is likely to award all ownership interest in a family owned business to the spouse related to that family. A prenuptial agreement can avoid expensive litigation by clearly establishing the ownership interest as that spouse’s separate property.
In order to effectuate an equitable division of the property in the marital estate, the spouse who is not receiving a share of the business must be awarded other assets equivalent in value. A prenuptial agreement can assist in avoiding a valuation dispute by providing a formula that the parties agree to use to value such stock in the event of a divorce, whether by reference to a shareholder agreement or by including a formula in the body of the prenuptial agreement.
Ownership of a closely held business is but one reason to consider a prenuptial agreement. If drafted fairly, prenuptial agreements may protect the interests of both spouses.
The content of a prenuptial agreement can vary from a limited agreement which addresses only a specific asset to an agreement which addresses all present and future assets. Some agreements are structured so that they change over time, others may apply only in the event of death or only to certain assets acquired before the marriage, or may even terminate upon a date certain or the occurrence of a specific event.
Hiring a lawyer to draft a prenuptial agreement that best fits your circumstance and needs costs money, of course, but if you are considering marriage, and have assets you wish to protect, a prenuptial agreement is a wise investment.
Know the Law is a bi-weekly column sponsored by The McLane Law Firm. Jeanmarie Papelian can be reached at firstname.lastname@example.org.
We invite your questions of business law. Questions and ideas for future columns should be addressed to: Know the Law, The McLane Law Firm, P.O. Box 888, Manchester, NH 03101 or emailed to email@example.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.