The Importance of Premarital Agreements for Business Owners

Believe it or not, a business partnership can be similar to a marriage in many ways. You have to make decisions together, communicate, and respect each other’s opinions on everything. Also, when you decide to commit to a business partnership, there is an understanding that there is going to be a long term commitment. In light of the importance of this commitment, many business partners enter into partnership agreements. These agreements are drafted by attorneys and consider many different scenarios that can occur. The agreements cover everything from disagreements on decisions to death and even “divorce” of the business partners. For many people, entering into a partnership agreement is a standard transaction. It is not an emotional decision to enter into a partnership agreement because love is not usually involved.

Similar to a business partnership, a marriage will involve a great deal of trust, commitment, and respect. Most certainly, there is a long term commitment involved (and hopefully a life time commitment). However, because marriage is such an emotional matter, people often don’t consider the importance of a premarital agreement. Our team at Alternative Divorce Solutions does a lot of writing on the benefits of premarital agreements, so I won’t go into them in too much detail here. Today, I feel that it is important to focus on the benefits of a premarital agreement when one of the spouses has a business partner. Think about this hypothetical – Sally and Bob are planning to get married. Bob and Steven are in a business partnership together as 50/50 owners. Bob and Steven have built the business together, and are accustomed to making all of the decisions relating to the business together. Now, imagine Bob passes away. Sally has now inherited Bob’s half of the business, although she has never had any experience running the business or making any decisions. In another scenario, Sally and Bob divorce. Sally, looking to protect herself, wants a forensic accountant to value the business and wants to have shares in the business instead of just being compensated for the value of those shares. This conflict not only puts strain on Bob, it is also invasive to his partner and causes a lot of stress.

These are just a few of the things that can happen in the absence of a premarital agreement. Remember, having a premarital agreement does not need to mean that you are thinking about a divorce. It is just another way to be responsible for the things you have built, and to the other people who might be impacted if something were to happen. Bob’s partner should not need to be subject to any consequences in the event of Bob’s death or divorce. Furthermore, Bob and Steve should be able to decide what would happen to their business in the event something were to happen to either one of them. These are personal, private decisions that people should be able to make when they are in a good frame of mind. During divorce or death, emotions are running high and people tend to lose control. People also must give the decision making powers to a judge, who does not know them, their family or what they must face on a daily basis. This is why our team at Alternative Divorce Solutions is so passionate about crafting premarital agreements that fit the needs of the individual family. We can appreciate that your business is unique and that you have worked hard to build what you have.