Prenuptial agreements, buy-sell/buyout agreements, and trusts can protect a business in the midst of a divorce. Prenuptial agreements are made between prospective spouses in contemplation of marriage and are effective upon marriage. Discussing a prenup during wedding planning can offer a positive sense of security. Buyout agreements are made between co-owners of a business and dictate decisions should one owner be forced to leave, choose to leave, or upon death. Trusts allow parents to give business-related assets to the child(ren) without fear that the child(ren) will lose those assets later.
Prenuptial agreements must meet specific standards to be considered valid in divorce proceedings. This document must be in writing and executed voluntarily with a witness present. The circumstances in which the documents were signed are essential components. The agreement may be invalid if it is proven to be:
- Obtained through fraud;
- Obtained through misrepresentation;
- Obtained through material non-disclosure; or
- Obtained through duress.
If a couple is not comfortable with a prenuptial agreement, they can choose to constitute a buyout agreement.
During a divorce, an appropriate buyout agreement would obligate a former spouse to pay any interest acquired in a settlement back to the business’s proprietors at an expense set by a specified valuation method. Buy-sell agreements can allow an owner to buy out the other person to keep the business from deteriorating. If a couple decides to continue working together after the divorce, a shareholder agreement should be written that gives either spouse the right to buy the other out at a mutually agreeable price.
A way to protect family business assets in the long haul is to use a trust. Diligent drafting of a trust’s terms and conditions will assist in helping safeguard funds from inadvertent beneficiaries. Assets placed in a trust established before marriage are typically treated as separate property. Subject to location, some assets placed in a discretionary trust are not considered to be belonging to the beneficiary when calculating alimony (these laws vary from state to state). While trusts may work for many high-net-worth couples, they generally cannot be used as a sole means to protect a family business during a divorce.
Relative processes and discussions can allow couples to better understand each other’s expectations for the marriage/domestic partnership. Nevada attorneys can help provide the proper environment to assist couples/divorcees with legal courses of action.