blog home Marital Agreements Signing a California Prenuptial Agreement When a Business is Involved

Signing a California Prenuptial Agreement When a Business is Involved

Posted by Thomas Huguenor on December 9, 2014 in Marital Agreements

This is the next post on when to consider signing a prenuptial agreement in California. My last post discussed how a couple can protect themselves if one spouse is in danger of filing for bankruptcy. In this post, I will discuss why a prenuptial agreement should be considered when one individual owns a business.

A prenuptial agreement protects the future of a San Diego business in the event of a break-up

People are delaying marriage until later in life in today’s society. This often means that parties to a marriage have often already established a career or business by the time they wed. A prenuptial agreement is often crucial for a couple to have when one person already owns a business prior to marriage. An agreement serves two purposes in California. First, it protects the business owner from having to potentially divide an increase in business worth during a divorce. Second, it protects the non-business owning spouse from shouldering any business debt.

While not pleasant to think about, many business owners without a prenuptial agreement are forced to sell their business in the event that a marriage does not work out. Essentially it works like this: if person A owns a small business that is worth 1 million at the beginning of the marriage, and at the end of the marriage the business is worth 3 million, then the business has increased in worth by 2 million dollars. This means that person A potentially owes person B one million dollars to compensate them for their half of the business profits. However, most business value is not liquid. Thus, person A will either have to forfeit their claim to a different asset of value, such as the house, or sell the business to acquire the cash necessary to compensate spouse B. The reverse scenario is also possible. Should the business acquire substantial debt during marriage then the non-business owner spouse would owe half of that debt. This is true even though they may not have anything to do with the runnings of the business. For many people this is not a risk that can be taken. Having a premarital agreement drafted is a fair way to protect San Diego business owners facing this situation.

Premarital agreements can protect California business partners and family members with business claims

Not all businesses are owned by a single individual. A business owner has to protect more than just himself when there are business partners involved. Sometimes businesses have been run in a family for years and a marriage puts other family members on edge. Other times, a business is co-owned and a partner may fear that a divorce will put the business in jeopardy. Drafting a prenuptial agreement is a way to protect not only the business owner, but the other partners involved as well who may have concerns. For more information about drafting a prenuptial agreement, contact our San Diego, California family law attorney today.

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Posted in: Marital Agreements

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