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How is a business owner protected during divorce?

On Behalf of | Aug 4, 2021 | Property Division

Marriage should be an opportunity for two people to create a future full of promise and hope. For the pragmatic New York State business owner, however, prosperity may lie in the protections that a solid marriage agreement can offer. Keeping business separate from marriage from the outset can prevent the headaches that may pop up in the event of a divorce.

A prenuptial agreement is a document that both parties enter into before marriage that protects not only separately owned assets, but also future assets, whether from profits from a business or through a trust or other property acquired during the marriage. In order for a prenuptial agreement to be valid, both parties must declare all assets and liabilities and freely enter into the agreement without coercion, intimidation or force.

Having a seasoned legal counsel to provide advice and representation is essential in providing clarity and financial security for couples from the beginning.

Prenuptial agreements

In the state of New York, like elsewhere, parties enter into the agreement before marriage, and protected properties may include:

  • Real estate
  • Financial interests
  • Income and earnings
  • Debts
  • Present and future assets

The requirements for a valid prenup are a written contract entered into and signed freely by both parties, notarized, and the requirement that both parties seek legal counsel at least seven days before signing.

What happens to a business in divorce?

A prenup prevents the potential sale or dismantling of a business to pay for a divorce settlement or loss of income. Partnering with a spouse or investing money in a business can make it financially vulnerable during divorce, and an increase in value of the entity throughout the marriage could entitle the other spouse to profit from the business’s success.

Without a concise prenup, any debt that results from the division of marital assets can result in the dissolution of the business to pay off debt. If the business owner does not separate the business from the marriage, it can also affect business partners and employees, and disrupt client relationships. Above all, it is important to keep in mind the importance of a pragmatic approach to marriage that keeps business and romance separate from the beginning.