If you own a business and plan to get married, you may already know that a prenuptial agreement can address property you bring into the marriage. However, your biggest concern may not be what your business is worth today. You may be more focused on what it could be worth five, 10 or 20 years from now.
Many successful businesses begin with modest assets and steady growth. Over time, your company could become one of your family’s most valuable assets. As the business expands, questions can arise about ownership, business income and increases in value. A prenuptial agreement can address those issues before marriage and define how you and your future spouse will treat certain business interests if the marriage later ends in divorce.
Why future business growth can become a divorce issue
If you are building a business, the company’s future value may be more important to you than its current value. A company that generates modest revenue today may look very different after years of expansion and investment. Several factors can contribute to business growth:
- Expanding into new markets
- Increasing revenue and profits
- Adding locations, equipment or services
- Developing new products or business lines
- Building a larger customer base
As your company expands, the increase in value may become more important than the value that existed when you got married. In a divorce, questions can arise about how that increase should be treated and whether it could become a source of disagreement.
What a prenuptial agreement can address
A prenuptial agreement can establish how you and your future spouse intend to treat certain business interests if the marriage later ends in divorce. The agreement can address both your existing business and increases in value that occur over time. Some business-related issues a prenup may address include:
- Defining a business as separate property
- Addressing future increases in value
- Distinguishing business income from ownership interests
- Establishing terms for future ownership stakes
- Applying similar provisions to future business ventures
The terms of a prenuptial agreement will depend on your circumstances and the type of business you own. The concerns associated with a family-owned company may differ from those involving a professional practice, startup or closely held business.
How different businesses create different concerns
Not every business presents the same issues. A family-owned company may involve succession plans and multiple generations of ownership. A professional practice may depend heavily on one person’s work and reputation.
You may also start another company, acquire an ownership interest in a different business or bring family members into the operation. These circumstances can create questions about ownership, valuation and future appreciation that do not arise with other types of property.
Growth can change the picture
If you have spent years building a company, its current value may represent only part of the picture. The future success of your business could have a greater impact on your finances than the value it holds today.
For that reason, business owners frequently consider not only the assets they currently own but also how future increases in value may be treated. A prenuptial agreement can address both concerns and establish expectations regarding a company’s value as it grows over time.
