Whether you are the only owner of your small business, or have a partner, a pre-nuptial or post-nuptial agreement may help protect your business in the event of your divorce or death.
Without a pre-nup, Minnesota law determines who gets what in the event of a divorce, annulment, legal separation or your death. With a valid, well-drafted pre-nup, your pre-nup contract determines what happens.
For maximum control, you want your assets to be characterized as “non-marital property” rather than “marital property”.
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With some exceptions, any property acquired during the marriage is presumed to be marital property in Minnesota, regardless of whose name is on the title or which spouse paid for the asset.
However, the following assets, even if acquired during the marriage, are typically non-marital property under Minnesota law:
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Property that is excluded by a valid pre-nup agreement;
- Gifts and inheritance given to only one of the spouses;
- Property acquired before marriage; and
- Property acquired in exchange for the gift or inheritance, or the property owned before marriage.
Therefore, the business that you started before your marriage is considered a non-marital asset in Minnesota, but there’s a catch: Income that you earn during the marriage on non-marital property is considered marital property. Therefore, assets can be part marital and part non-marital.
If your business is even only partly comprised of non-marital assets, it can be subjected to legal action by your divorcing spouse. Then you not only incur legal expenses, but also disruption in your business and the exposure of confidential information about your business to your divorcing spouse and others while the dispute is being waged over the value of your business.
To avoid the expense and hassle of having your business included in a divorce proceeding or dispute over your estate, consider engaging a lawyer to draft a pre-nup agreement. A valid agreement avoids dissolution or probate litigation proceedings, and prevents a judge from exercising his or her discretion to award up to half of the value of marital property in a divorce proceeding.
Both pre-nups and post-nups are used to help protect business interests. By definition, a pre-nup is signed before the marriage whereas a post-nup is signed after the marriage. Note that a post-nup in Minnesota is presumed invalid and unenforceable if either spouse files for a divorce within two years after the signing of the agreement.
When there are co-owners of a business, the business owners could insist that unmarried owners obtain a pre-nup before marriage, and that owners who are already married obtain post-nups. Creating a mandatory requirement of a pre-nup or post-nup for owners would remove some of the difficulty of asking a fiancé or existing spouse to sign the pre-nup or post-nup. And, the pre-nups and post-nups may be good for the operations and finances of your business, too.
Even companies with buy-sell agreements in place may want to consider requiring pre-nups and post-nups of all owners. The buy-sell agreement typically outlines what happens if an ex-spouse of an owner is awarded part of the business. Usually, the buy-sell agreement would provide for a buy-out of the ex-spouse’s new-found ownership interest, perhaps at a discounted price. But the pre-nup or post-nup could prevent the business from being dragged into court as a marital asset subject to division.
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Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney. An attorney-client relationship is not formed by reading this Blog. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.
Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305 952-649-9771 www.bwittenburglaw.com bonnie@bwittenburglaw.com
