NEW YORK DIVORCE AND FAMILY LAW: DIVORCE PROOF YOUR BUSINESS

When starting a business the last thing most individuals think of is protecting that business in case of divorce. Also, when falling in love and deciding to get married, most people actually over look discussing the possible consequences a divorce may have on the business one spouse owns. However, a business may be the most valuable asset within a marriage, worth more than homes, cars, or stock portfolios.

The moral of this blog post is so important and so pertinent to any business owner that I was invited to give a lecture to business students at Montclair University about how to protect a business in case of divorce, and was more than honored and happy to do so.

Ways to protect a business in case of divorce:

1) Prenuptial Agreements
2) Postnuptial Agreements
3) Language in a business/partnership agreement

Prenuptial and Postnuptial Agreements:

These sorts of agreements have a bad reputation and stigma that are attached to them. After all, traditionally it was held that when two individuals get married their ideology is what is mine is yours and what is yours is mine. However, any business owner knows that starting and operating a business is extremely hard and time consuming and that a tremendous amount of effort, energy and sweat goes into the undertaking. So, why shouldn’t you protect your time, energy and effort?? No one goes into a marriage believing that it will end, but over half of them do, so the possibility cannot be ignored and should be planned for, especially for business owners. Moreover, the non-owner spouse is also protected by such an agreement, since naturally the non-owner spouse helps the business in their own way, by making sure there is a meal on the table, taking care of the kids while the other partner runs their business, or any other effort they put into a family so that the business owner spouse can devote their time to the business

The law relies on words and the language of a prenuptial agreement must be drafted by an attorney specializing in matrimonial law, so that the correct language is used and that the business is properly protected.

If an individual began a business after marriage, then a postnuptial agreement should be considered. There is no difference between a prenuptial and postnuptial agreement, except that a prenuptial agreement is one drafted prior to marriage and a postnuptial is one drafted after marriage. In fact, in the past certain retirement assets could only be waived by a spouse, so if one had a prenuptial waiving the right to those assets, they also had to have a postnuptial waiving the same assets.

Bottom line is that both a pre or post nuptial agreement are contracts between two individuals, premised on the consideration of their marriage. They must be done voluntarily without any duress, fraud, or concealment. Each individual must have full knowledge of all assets, their worth and what they are gaining or giving up prior to executing either agreement for the agreement to be considered fair and recognized by the Court of Law. The best part of having such an agreement is that any terms of the agreement override local law, in New York being equitable distribution. Without having said agreement the business would be split up by the Court any way they see fit and fair.

Language In Business/Partnership Agreement:

Divorce can become emotionally and financially devastating, not just for the divorcing couple and their family, but also for the business's employees and co-owners. In the past there have been cases of the non-owner spouse taking over enough interest of a business to control certain decisions of that business and obtain an active ownership interest themselves. So, business agreements and contracts, as well any articles of incorporation, should be reviewed and the right language inserted by a legal professional to make sure they also protect every one who has an interest in case of one partner or co-owner’s divorce.

If a business is a multi-generational family business that business may consider a Family Limited Partnership arrangement. These versatile estate transfer tools can specify that business interests are not subject to division in divorce.

Also, a spouse's interest in a partnership or corporation can be preserved by including restrictions on transferability.
This means, for example, that a shareholder cannot transfer half of his/her stock to a divorcing spouse even if that spouse is treated as having a right to that interest. The non-owner spouse can receive some assets, but not the business interest itself.
So, protect your business, don’t let a divorce wreck the biggest project and undertaking of your life.

Until Next Time,

Helen M. Dukhan, Esq., LL.M. at www.DukhanLaw.com