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The benefits of a prenup for New Jersey business owners

On Behalf of | Jan 15, 2020 | Divorce |

Most couples don’t want to think about divorce before they’re married. However, if one or both spouses own a business, they may want to have a plan in place in case their relationship gets turbulent.

Entrepreneurs don’t often think about marriage and perhaps much less about a prenuptial agreement. But if New Jersey business owners get divorced, they usually have a lot to lose.

How divorce can put business at risk

Marital separation could severely damage one’s business prospects. Depending on a couple’s financial circumstances, one spouse could walk away with a good portion of its profit margin. For instance, if the spouse’s company was worth $2.5 million before the marriage and then worth $5 million when they split, the spouse who doesn’t own the business could walk off with at least half of its value.

Sadly, this can do significant damage to a company. Such losses could mean the owner has to cut costs to make ends meet. These actions could result in employee layoffs and severing business relationships the company can no longer afford.

While this may be scary for some, owners can increase their chances of protecting their livelihood by having them and their spouse sign a prenuptial agreement.

Defining a prenuptial agreement

Prenups are a written agreement typically signed before a marriage. They often define the financial and property rights of spouses if they were to split. In New Jersey, a prenup can set the rights and obligations of each spouse regarding property, determine how property gets distributed and define the modification or elimination of spousal support.

What owners can put in a prenup to protect their business

Discussing these matters with a significant other may not always be romantic. However, it’s crucial business owners and their spouses agree on how the business receives protection during a divorce:

  • Treat business appreciation as separate marital property
  • Limit debt liability
  • Maintain and keep copies of all business records

While prenups are often beneficial for business protection, owners may want to make sure the agreement remains enforceable for a prolonged period. Sometimes, couples make the mistake of drafting the contract with only one attorney, which can weaken the validity of the agreement. In order for a prenuptial agreement to be valid in New Jersey, each party must have their own attorney.

Divorce can create financial challenges

Entrepreneurs often put much time, effort and energy into the businesses they create. The last thing many want is to have their hard work stifled by the financial and emotional burdens of divorce. Luckily, a prenup can help protect their business and help them cope with their marital losses.

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