Divorce and the Business Owner: Protecting the Business

Some marriages may last for decades, others just a few years. No matter how long a marriage lasts, divorce can have a profound effect on a business, unless the business owner took steps ahead of time to minimize the impact of divorce.

One of the best ways to minimize the impact is with a prenuptial agreement. In the event of divorce, a prenuptial agreement can prove invaluable in protecting a business and its assets. Massachusetts considers a variety of factors when deciding how to divide a marital estate, and a prenuptial agreement can help protect a business that would not otherwise be protected. In order to ensure that a prenuptial agreement will be upheld, it is important to consider the following factors:

  • Both parties should enter into the agreement willingly.  Neither party should feel pressured to accept the terms of the agreement.
  • Full financial disclosure must take place on both sides.  This includes an exchange of financial information including assets, liabilities, salary, etc.
  • Both parties should have their own attorneys, or be given the opportunity to seek independent legal advice.
  • The terms of the agreement must be fair and reasonable at the time of execution and at the time enforcement is sought.

When the above factors are met, chances are likely that the agreement will be able to withstand a challenge.

Prenuptial agreements aren’t the only way for a business owner to protect his/her business. A postnuptial agreement is another. Post-nuptial agreements are usually used in situations where a business was started after the marriage occurred. However, it can also be used by someone who owned a business prior to the marriage but no prenuptial agreement exists. When entering into a postnuptial agreement, the following factors should be considered:

  • Both parties should have their own attorneys, or should be given the opportunity to seek independent legal advice.
  • The agreement should be free of any fraud or coercion.
  • Full financial disclosure must take place on both sides.
  • Both parties must knowingly waive rights to property sharing and/or support upon divorce.
  • The terms of the agreement must be fair and reasonable at the time of execution and at the time enforcement is sought.

If the above factors are met, it is more likely that the agreement will pass judicial scrutiny.