8 Reasons Why Entrepreneurs Must Have A Prenup

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Being an entrepreneur is a risky, but rewarding, experience, and most entrepreneurs put everything they have into seeing their business come to life a grow. 

A business is also an asset. In many cases a huge asset. And it can often be tricky navigating your business when you have a spouse (or soon to be spouse) who may or may not be contributing to you achieving your entrepreneurial dreams. 

A prenup does not mean you have to completely exclude your spouse from any interest in your business, but it does mean you are in control of what, if any, interest they have. 

Here are some of the primary reasons entrepreneurs must have a prenup. 

Many Partnership Agreements Require Prenups 

Many savvy entrepreneurs know the drawbacks of having a partner go through a divorce. They want their partners to be the people they contracted with; not the spouses of those people. So many entrepreneurs and their attorneys will insist on a prenup clause in a partnership agreement. This typically includes languages requiring everyone in the partnership who is married to have a prenup in place protecting the business from division in the divorce. 

This is also a great way to get a future spouse to be more accepting of the agreement. It makes it a little less personal since it’s something everyone must have. 

Founders May Want To Maintain Control 

Another reason to have a prenup is to maintain control over who has a say in the business. You probably don’t want your ex having a say in how your business is run if they have never been a part of the business. A prenup can protect you from that possibility. 

Keeping It In The Family 

Often family businesses have prenup requirements to keep the business in the family. The last thing you may want is an ex family member having an interest or say in the family business. That doesn’t mean you have to completely exclude anyone who isn't a “blood” relative, there can be a clause that after so many years of marriage a spouse can be entitled to a share. 

Mitigation of Support 

A prenup is a great tool to mitigate (or eliminate) the amount of spousal support you may be obligated to pay. While you can’t include child support in a prenup in New York, you can agree to waive maintenance or limit the amount you would be required to pay. 

This doesn’t mean not supporting a spouse when they are entitled to it, but it does mean being able to put limits on the amount of support so you both know what to expect and can plan and prepare for your financial future in the event of a divorce. 

You May Be Forced To Liquidate Your Business In A Divorce 

In a divorce, if you cannot afford to buy out your spouse, you may have no other option than to liquidate the business. If you have no other options or way to pay them for their share you may have to sell the business and use the proceeds for the buyout. 

If this is NOT what you want, your best bet is to have a prenup that either retains the business as your separate property or lays out how what percentage of the business will go to your spouse and how they will receive it (like giving them other assets or setting up a payment schedule). 

Protect Your Retirement 

One of the most common things people are surprised about in divorce is that their spouse is entitled to a marital share of their retirement assets. This can feel very unfair if you were diligent about saving while your spouse was not and they get half of what you saved for retirement. 

While this is not only an issue for entrepreneurs, it is an issue that everyone should consider including in a prenuptial agreement. If you are not going to save together, you want to make sure your retirement is protected. 

Eliminate Debt Responsibility

Another issue to consider is debt responsibility. You want to make sure your business and business assets are protected from your spouse’s creditors and vise versa. Your spouse may not want any responsibility for your business debts. 

Start Your Marriage On The Right Foot  

Lastly, one of the lesser-discussed benefits of a prenup is starting your marriage on the right foot. Money is one of the top reasons for divorce, so having discussions about finances before marriage while preparing the prenup can help you and your spouse eliminate many issues from the start. 

I help my prenup clients identify sticking points that they can discuss with their premarital counselor before we finalize the agreement.

Discussing a prenup can be intimidating but it really is the best way to protect yourselves and your business. 

Have questions about a prenup in NYC? Schedule your case strategy session today.