Plan for the worst to ensure the best for your business
It’s not very romantic, but planning to protect your business from divorce before getting married is important.
No one ever expects their relationship to end, however, approximately 41% of Canadian marriages do not last longer than 30 years. That being said, every individual can benefit from having a well-drafted pre-nuptial agreement before entering a marriage, but for the 2.7 million Canadians who are self-employed, a pre-nup can ensure all of their hard work, planning, and investments continue to pay off even if their relationship ends unexpectedly.
Divorce can negatively impact a small business in several ways. Even if a spouse started their business before getting married, their ex would be entitled to half of any appreciation in value that the company experiences during the marriage if a pre-nup was not signed. As a result, the business could suffer financially, and the owner may be forced to make difficult cuts. Furthermore, couples may find it hard to reach an agreement after separating, and the additional conflict and stress could slow or stop the owner’s ability to maintain day-to-day operations.
Not every entrepreneur starts a business in their 20s or 30s, and unfortunately, individuals who launch their company after marriage are more vulnerable. In this case, if the couple splits, the business will be considered a marital asset, and will be valued as part of the financial analysis in the divorce. However, if both parties enter a marriage contract, a written agreement that can be signed after a wedding, and provides a detailed set of instructions about how to deal with the couple’s respective rights and obligations under the marriage or in the event of separation, the risk of losing half of the business can be minimized – but the spouse being asked to sign the contract may become upset or defensive, and no one can be forced to sign a marriage contract.
A key detail to keep in mind, pre-nuptial and marriage contracts must be drafted and signed properly in order to be legally binding. They must be predicated by complete disclosure on the part of both spouses in terms of their respective assets, debts, and other liabilities, and each spouse must have had independent legal representation and advice in achieving the agreement. Furthermore, the agreement must be clear and accurate. Otherwise, the enforceability of the agreement may be weakened or even considered void.
Are you a small business owner who needs legal advice about how to best protect your company? Contact us for a free consultation and see how we can assist you.