Divorce under any circumstances is a messy and ugly affair. But it gets even worse when you are the owner of a small business or when your business partner is your spouse! On the Small Business Radio Show this week, family law attorney, Tiffany Hughes discusses how to prepare for the worst-case scenario to ensure that you and your company are protected.
Unfortunately, during COVID-19, Tiffany has seen a rise in divorces with two spouses living and working together 24/7. But she thinks that the foundation of their relationship was probably cracked before the pandemic. She believes that if every couple had a prenuptial agreement, then everything would be negotiated ahead of time in the event that the couple split up.
Interview with Family Law Attorney Tiffany Hughes
According to Tiffany, a prenuptial agreement covers the division of the parties’ present assets and property in the event the parties file for divorce. Deciding what personal and business terms to include in a prenuptial agreement is extremely important and Tiffany suggest to speak with an attorney to ensure you are protecting yourself and your assets.
Tiffany describes the requirements of prenuptial agreement as fairly simple. Both parties must make a full disclosure of all their separate assets and liabilities prior to the agreement being signed. Each spouse must have the opportunity to consult with and retain a separate attorney for review.
Most importantly, Tiffany adds that “when it comes to divorce, businesses are no different than any other asset.“ if a business owner does not want the value of their company split 50/50 at the time of divorce, they need a “prenup.” (or a “postnup” which is signed after being married). Absent of that agreement, the business would have to be appraised and then either sold or one spouse would have to buy the shares of the other.
In many shareholder agreements, spouses of shareholders are required to sign an addendum that says they will sell their stock back to the company if the spouse who is a shareholder gets divorced. This prevents existing shareholders from having to be partners with the divorced spouse.