MIAMI — A prenuptial or postnuptial agreement can save your business.
Consider two dry cleaners, Ricky and Fred. Both thought they would be married to their wives until “death do they part.” Unfortunately, they both ended up divorced.
Ricky walked out of divorce court personally and professionally ruined. Fred, while emotionally drained, was able to maintain and grow his successful business.
Fred was married to Ethel for 22 years, and they have a daughter.
Like Ricky and Lucy, Fred ran the business while Ethel was involved part-time in just certain aspects. But unlike Ricky and Lucy, when Fred bought his drycleaning business nine years earlier, Fred and Ethel signed a postnuptial agreement to protect each other in case of divorce.
The attorney-drafted agreement laid out a strict structure for evaluating and dividing the business, and for determining Fred’s true income for spousal and child support.
It identified and limited the financial information and documents that the business would have to disclose.
It also required that the couple use a single, neutral accountant, who would be paid from marital property and not by the company.
Early in the divorce, Ethel agreed that the postnuptial agreement was valid.
She waived any right to ask the court to force the company to disclose more information or documents than described in the postnuptial agreement. This entitled Ethel to an immediate, fair, and higher award of support, thanks to a provision that she and Fred put in the agreement to encourage a quick resolution.
Within a month, Fred and Ethel’s divorce was finalized, with minimal attorney and accountant fees, and with no interference or intrusion into the drycleaning business.
How could two similarly situated businesses and families leave divorce court with such different results?
The first story is horrifying, but exceedingly common. Many states have onerous disclosure requirements that unnecessarily burden the time and finances of a small business.
Unscrupulous divorce lawyers are trained to hone in and target a business owner’s fear of having the business’ confidential and financial information exposed to the world.
Fair and careful divorce lawyers will also want extensive company records, because they fear being liable for giving bad advice if they make recommendations without investigating the whole picture themselves.
Either way, good lawyer or bad, smart judge or not, a case involving a small business can be very costly. One way to avoid being a Ricky is to get a prenuptial or postnuptial agreement like Fred.
A good prenuptial or postnuptial agreement can render the most intrusive and damaging financial disclosures unnecessary, and can limit or attribute the related costs away from the business. In some situations, as explained, they can save the business itself.
If Ricky had a prenuptial or postnuptial agreement in place, maybe a receiver would not have been necessary, and Ricky and Lucy could have resolved the business’ regulatory problems confidentially without going out of business.
Ricky and Fred were not wrong to believe in their marriages. A lifelong commitment is not fanciful; it is a hopeful and beautiful goal. Most couples think they will reach that goal and that other couples will fill our country’s depressing divorce statistics.
But consider this, we buy life insurance, install security systems, and wear seat belts “just in case.” They give us security even if we think that odds will always be in our favor.
A careful and thorough prenuptial or postnuptial agreement can provide you, your spouse, and your business with security that all will be protected in a divorce.
To read Part 1, go HERE.