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Business owners should consider prenuptial agreements

On Behalf of | May 7, 2020 | Divorce

In community property states like California, when a couple gets a divorce, all assets that either of them acquired during the marriage (with limited exceptions) must be split equally. Though assets acquired before marriage are considered separate property, assets can easily get commingled with community property assets later. Prenuptial agreements can be a way for spouses to ensure that their separate assets do not get mixed with community property assets during their marriage.

Businesses are one example of separate property that can be considered to be community property. Even if a company is started before the owner marries, the appreciation or depreciation of the business’s value during his or her marriage is counted as community property even if only one spouse works for the business. A soon-to-be spouse with a substantially sized business may want to determine its value before getting married and list it in a prenuptial agreement to keep that amount separate.

A prenuptial agreement can also be used to agree to something other than a 50-50 split upon divorce. Some couples may decide that in exchange for one spouse helping with the business, he or she will be entitled to more than 50% of the company if they separate. Another good thing to discuss before marriage is how a business will be divided in the event of divorce. If both parties can agree that one spouse will be entitled to a lump sum portion instead of an ownership interest, it will save them the fight over whether to sell the business because they cannot agree on who will retain ownership.

Determining how to divide property during divorce, and high-asset divorce in particular, can be complicated, particularly if some assets were acquired before the marriage and mixed in with the community property assets. A California-licensed family law attorney can help.