If you are a business owner or professional, you already know the value of steadiness and predictability. Those values translate into your personal life, particularly with regard to domestic matters. While you hope that your marriage will never end and will bring peace and joy to you and your spouse, nothing is guaranteed. Left unchecked, a divorce can introduce serious havoc into your life, threatening your company, its employees, and your professional reputation. This is where seeking guidance from a Kansas City prenuptial agreement lawyer from Joseph, Hollander & Craft can help you.
A prenuptial agreement can bring that steady predictability you need by providing financial and legal clarity in the event of a divorce and protecting against future circumstances that may arise without warning.
What is a Prenuptial Agreement?
Before getting married, two people can enter into a contract known as a prenuptial agreement. It becomes effective once the marriage begins, and it can dictate a number of matters such as those described below. A common goal of a prenuptial agreement is to set out how certain marital assets (including business interests) will be divided between spouses if they ever divorce.
A prenuptial agreement has to be written in order to be enforceable, and it must follow the applicable laws of the state in which the soon-to-be spouses sign the contract. For this reason, it is imperative that you retain a knowledgeable premarital agreement attorney.
What Your Prenuptial Agreement Should Address
A well-drafted, comprehensive prenuptial agreement will cover a number of different matters that will help protect the interests of professionals and business owners. Among the items to include in your agreement are:
- Business valuation: Family courts must divide marital assets, which may include businesses. But a prenuptial agreement can spell out how the value of the business will be determined for purposes of property division, rather than leaving it in the hands of a judge. There are different valuation methods, and the prenuptial should specify which one the spouses will use if they divorce.
- Premarital ownership vs. marital growth of the business: If you owned the business prior to your marriage, then value of the premarital ownership is generally considered to be your separate property. However, the value gained from any growth of the business that takes place during marriage may be considered marital property subject to division. A prenuptial agreement can draw a clear line to establish what the spouses intend to treat as separate property and marital property.
- Retained earnings, distributions, and deferred compensation: These are valuable assets stemming from your business, yet they can potentially be subject to equitable distribution with your spouse. Define and fully address these in the prenuptial agreement to make it clear how they will be shared if your marriage ends.
- Contributions by the non-owner spouse (direct or indirect): Your spouse may have no ownership interest in the business, yet they may have made direct or indirect contributions to its growth and success. You will need your spouse to be compensated for these without allowing too much entanglement with your business, so spell out how this should happen in the prenuptial agreement.
- Tax implications from sales or transfers: Transfers of assets between spouses, incident to the divorce, are typically tax-free events. But the prenuptial agreement should include appropriate language to this effect. Also, the subsequent sale or transfer of assets that were received in the divorce could give rise to tax liability. The agreement needs to make it clear who is responsible for these taxes.
- Spousal support/alimony caps or waivers: As a professional, you may be forced to pay significant spousal support (commonly referred to as “alimony”) to your spouse upon your divorce. The prenuptial agreement can address this by placing a cap on alimony or spousal support, or even having one spouse waive their rights to either. This can add predictability and certainty to the issue of alimony if you and your spouse get a divorce in the future.
- Debt allocation, especially tied to the business: Will either you or your spouse need to share responsibility for marital debts? If you are a business owner or professional, you will need to consider this general question along with business debts more specifically. The answer will depend on such factors as the structure of the business (e.g. a limited liability company or partnership), both spouses’ contributions to and interests in the business, and the nature and purpose of the debt.
- Business succession and estate planning: If you have a family business that you want to keep in your family after a divorce, thus ensuring smooth continuation of the business and its eventual inheritance by your children or other heirs, your prenuptial agreement should include terms to this effect. These items raise important business succession and estate planning questions.
What a Well-Drafted Prenup Does for You
Peace of mind, predictability, finality – these are the objectives and accomplishments of a properly drafted prenuptial agreement. With a knowledgeable Kansas City prenuptial agreement attorney by your side, you can help ensure that the final contract meets your specific needs and goals, particularly with respect to your business and professional lives. Your agreement should therefore:
- Define separate vs. marital property: As a professional or business owner, you may have acquired substantial assets before your marriage. You should define what is separate property in your agreement and make it clear that, upon divorce, it will be distributed to you alone.
- Protect pre-existing business interests and isolate future growth: The above likewise applies more specifically to pre-existing business interests. Any future growth in the business should be separated entirely from what existed before the marriage so you do not risk losing whatever you inherited and built up in the business before you got married.
- Clarify treatment of income, distributions, and bonuses: Business income, distributions, and bonuses will need to be addressed in your prenuptial agreement. This may be more complicated when your spouse is also an owner of the business in question. Professionals, too, often have substantial income from investments and other sources that they will want to protect as much as they can in the prenuptial agreement.
- Protect your reputation: Another objective of a prenuptial agreement is maintaining discretion in one’s business and professional lives. Although equitable distribution is in general a public matter addressed in open court, a prenuptial agreement can dispense with marital property division with little to no publicity. This maintains confidentiality, privacy, and your reputation.
- Ensure transparency: If the spouses do not disclose relevant financial information to each other in the prenuptial agreement, this could be grounds for a judge to later set aside the contract and undo the protections that it provides. The other spouse may accuse you of hiding marital assets, including by concealing them in your business. To avoid this and the trouble it brings, your agreement should make it clear that both spouses have disclosed assets to their mutual satisfaction.
When Should You Draft Your Prenup?
Once you are engaged to be married, you need to speak with an attorney about your prenuptial agreement. It will take time to disclose assets, draft and make revisions to the agreement, consult separate legal counsel, and otherwise comply with the formalities of executing this important contract.
However, if you are already married or you simply did not have time to work out a prenuptial agreement before the wedding, you can still draft a postnuptial agreement which is similar to a prenuptial agreement. Talk to our team to learn more about these marital agreements.
Why You Want a Kansas City Prenuptial Lawyer to Draft the Agreement
Many business owners and professionals are tempted to purchase an online template or legal kit from a website that will help them draft a prenuptial agreement. However, these items are not necessarily compliant with state-specific laws and are often too generic to address your exact needs. A DIY prenup can be invalidated for any number of reasons, so it’s always best to work with an attorney.
A Quick Note About Missouri vs. Kansas
Kansas and Missouri follow different legal principles with respect to prenuptial agreements. Kansas has adopted the Uniform Premarital Agreement Act (UPAA), while Missouri uses contract law. This is an important distinction to make between the two approaches, because what is valid in one state may not be valid in the other. Put another way: the UPAA may require or provide for certain terms that the contract law principles of Missouri do not, and vice versa. This makes it even more important to hire experienced legal counsel, especially if you live or work in the Kansas City metro area.
Let Us Help Protect What You’ve Built
You’ve worked hard to develop your business and professional lives, and now it’s time to take the steps necessary to protect your future and plan for unexpected events such as divorce. The attorneys of Joseph, Hollander & Craft are ready to walk with you in this journey. For your convenience we have offices located in Kansas City, Lawrence, Overland Park, Topeka, and Wichita. Contact us to learn more.
