No engaged couple likes to think that their upcoming marriage may not last. You may worry about offending your fiance(e) by suggesting a prenuptial agreement, but if you own a business, it may be worth it to risk hard feelings in order to protect the company’s future.

The hard reality is that a contentious divorce can destroy your business. The moment your angry spouse decides to make things as difficult for you as possible, the future of the company is on the line. Also at risk is the livelihoods of your employees and any vendors who rely on you for a high percentage of their income.

New York is an equitable distribution state, so if you started the business while single and its value grew significantly during the marriage, the appreciated value will be treated as an asset during the divorce. If you don’t have any property of equal value to offer your spouse as their share of the higher business value, then it may have to be sold so that your spouse can be paid.

Without a prenup, the structure of the company will generally determine how its assets may be divided upon divorce.

  • The assets of sole proprietorships started during the marriage are treated as marital property because the company is not a distinct entity separate from the owner. The value of all income and assets is therefore subject to equitable distribution. If the business started before you were married, then the increased value is part of the marital estate, although assets bought during the same time frame are generally separate.
  • Partnership businesses are owned by the partnership itself, not the individual partners. You can only dispose of your interest, not divide it. Any income or profits received during the marriage would be legally marital property, even if your interest in the partnership predated the relationship.
  • With corporations, business assets are neither separate nor marital property. Only your interest in the corporation can be addressed by a judge, but even then, your control over the company can be reduced.

A prenuptial agreement can save you a lot of unnecessary time and expense by specifying how the business will be treated if the marriage ends in divorce. You and your spouse can discuss and reach an agreement on how the company’s assets will be divided if the relationship ends. Provided that its terms don’t make the agreement unconscionable, New York courts will generally honor a prenup that both parties signed willingly.

Divorces involving companies can be more complicated than most, which is why you should retain a New York attorney with experience in representing business owners. Your attorney can help you draft a legally valid prenup that allows the business to survive long after the divorce concludes.

Jayson Lutzky is an attorney with an office in the Morris Park area of the Bronx, New York. He handles divorce cases and offers free in-office initial consultations. Mr. Lutzky has more than 36 years of legal experience and has helped thousands of highly satisfied clients, as evidenced by numerous referrals. Call 718-329-9500 to set up an appointment.