Couples often have much to consider before tying the knot. But typically, most don’t want to think about separation before they’re officially married. While not always romantic, it’s often better to be prepared for potential turbulence, especially if one partner owns a business.
Entrepreneurs often spend a lot of time and money investing in their business. If they get divorced, they usually have a lot at stake. Whether the company was formed before the marriage or not, spouses could be entitled to more than half of the business’s value it gained during the marriage.
However, if spouses sign a prenuptial agreement before saying “I do,” it can be easier for owners to manage their business’s finances better and how much compensation their spouses can receive from it.
How owners can protect business value with a prenup
Here is how owners can structure their prenup to make sure their business receives protection amid a divorce:
- Limit debt liability: Debt can be a complicated subject, especially during divorce. As Illinois is an equitable distribution state, a judge often decides who is most responsible for that debt. If owners are still trying to pay off loans from starting their business, their spouse could hold some level of responsibility. To avoid this, owners may want to consider adding a provision in their prenup that states partners will not assume any of each other’s debts during the marriage.
- Keep track of all business records: For a sound marital agreement, owners must have transparent records of their business’s transactions. That’s because they can help establish their earning capacity before the marriage and justify why those assets should remain separate.
- Treat value increase as separate marital property: When spouses have an enforceable prenup, it can allow them to claim ownership of things they don’t share. When owners are discussing the details of the prenup with their spouse, they may want to include a provision that addresses the appreciation of the owner’s business, as well as other premarital assets.
Business owners deserve protection
Entrepreneurs often take daring risks. However, they may not want to do so with their business’s value and profitability during a divorce. Due to these circumstances, it’s often best entrepreneurs and their spouses seek assistance sooner rather than later.