Prenuptial agreements, also known as prenups, can give a spouse peace of mind by establishing predictable outcomes for property and other interests if a marriage ends in divorce. However, certain life circumstances — especially significant changes in financial circumstances — should prompt a review and possible update to a prenuptial agreement. Among the most common are the sale of a business or an IPO (initial public offering), particularly in a business owner divorce.
Some attorneys recommend reviewing a prenup every five or so years. In addition, if you are experiencing major changes in your business or professional life, it may be time to revisit your prenuptial agreement and assess whether it still reflects your current financial situation and responsibilities. Working with an experienced family law attorney can help ensure your agreement remains legally sound and aligned with your evolving financial landscape. The Kansas City premarital agreement attorneys at Joseph, Hollander & Craft provide professional guidance to help you plan for these changes with clarity and confidence.
Key Takeaways
- A business sale or IPO can dramatically change how assets are valued and classified in a divorce, especially when illiquid business interests become cash, stock, RSUs, or other easier-to-divide assets.
- Major financial events are strong reasons to revisit a prenup or create a postnuptial agreement, particularly when new income streams, investments, or equity compensation were not addressed in the original agreement.
- Updating these agreements requires careful planning and full legal compliance, including financial disclosure, independent legal counsel, and clear terms addressing asset classification, commingling, support expectations, and future liquidity events.
Why a Business Sale or IPO Can Change How Assets Are Treated in a Divorce
The sale of a business or an IPO can affect how assets are classified and valued in a divorce. These changes, in turn, influence how the business or related proceeds are ultimately divided between spouses.
Before a business is sold, its value can be difficult to determine. This is one reason business owner divorces tend to be more complex. Courts often rely on expert witnesses to assess the value of a spouse’s ownership interest. Even then, experts may disagree, particularly when each spouse advocates for a different valuation method.
A sale can largely resolve this issue by converting the illiquid business interest into liquid assets. The proceeds may include cash, stock, or other forms of compensation, all of which are generally easier to classify and value. Because of this, liquid assets are typically more straightforward for courts to divide.
A similar shift can occur with an IPO. The individual may receive stock options, restricted stock units (RSUs), or other compensation tied to the offering. These assets are usually easier to value than an illiquid business interest. Although a sale or IPO does not eliminate the need for expert analysis, either event can simplify the equitable distribution process.
Because a sale or IPO can significantly change how assets are valued and divided, these events often expose gaps or outdated assumptions in an existing prenuptial agreement.
When Should We Revisit Our Prenuptial Agreement?
Major life changes warrant an examination of a prenuptial or other premarital agreement. These are some of the most common triggering events which should motivate you to modify a prenuptial agreement or draft a postnuptial agreement:
- Starting or selling a business: Any change in the status of a business or the start of a new one is significant enough to affect the assets that will later be divided if your marriage ends.
- Other changes to your business: Events such as an IPO can materially change how a business interest is valued and should prompt a closer review of the agreement.
- Career changes: If you start a new job or end one, or enter into a new profession, you may need to revisit the spousal support provisions of your prenup.
- Relocating: Because the laws regarding premarital agreements vary by jurisdiction, it’s a good idea to review your agreement if you move to another state or country.
Common Issues Couples Address After a Business Sale or IPO
Major financial changes affect the character of the assets addressed in your original prenuptial agreement. If it is time to review your prenup, it is also important to understand the financial matters you and your spouse need to address. There are several issues to consider when modifying a prenuptial agreement or drafting a postnuptial agreement after selling a business or completing an IPO.
Equity Compensation and Stock Holdings
There are several forms of compensation a business owner may receive after selling a business or completing a successful IPO. These may include:
- Cash: Immediate proceeds from the sale.
- Stocks and stock options: Equity interests that may vest over time.
- Restricted stock units (RSUs): Compensation tied to future performance or tenure.
- Earnouts: Payments contingent on future business performance.
- Bonuses: Additional compensation tied to the transaction.
- Income (e.g., consulting): Ongoing business income following the sale.
A central issue in a business owner divorce is whether these forms of compensation are treated as past payment or future payment. If they are considered compensation for efforts made during the marriage, they will likely be classified as marital assets. If they relate to future services or performance, some or all may be treated as separate property.
Proper classification requires careful business valuation and a clear understanding of the financial circumstances surrounding the transaction. Addressing these distinctions is essential when modifying a prenuptial agreement or creating a revised agreement that reflects new assets and evolving financial dynamics.
Investment of Sale Proceeds
Once a business is sold, the proceeds become a different type of asset than the original business interest. However, the original prenuptial agreement may not clearly address how those proceeds should be classified or divided between the parties.
In many cases, proceeds are reinvested, which can change their character. For example, funds may be used to start a new business venture or to purchase investments that generate business income or passive returns. These actions can complicate financial planning and may introduce potential conflicts over whether the resulting assets remain separate or become marital property.
Commingling is another common issue. When sale proceeds are mixed with other assets, it may be more difficult to trace their origin using financial records, which can create legal challenges during the divorce process. Revisiting these issues through a revised agreement can help ensure the treatment of these assets remains clear and legally binding.
Spousal Support Expectations
A business sale or IPO can significantly change one spouse’s income and overall financial landscape. For example, a business owner may continue working in a consulting role or receive ongoing compensation tied to the transaction. These changes affect future earning capacity and financial responsibilities.
As financial circumstances change, expectations around spousal support often shift as well. One spouse may argue that increased income supports a higher support obligation, while the other may point to uncertainty in future earnings. These competing positions can create potential legal challenges if not addressed proactively.
Revisiting spousal support provisions with the guidance of a knowledgeable family law attorney can help ensure the agreement reflects current life circumstances and remains legally sound. Clear language and open communication between the parties are essential to avoid future disputes and support informed decisions.
Updating a Prenuptial Agreement Vs. Creating a Postnuptial Agreement
Whether you wish to update or modify a prenuptial agreement or simply enter into a postnuptial agreement, you must ensure that the agreement you sign meets the appropriate formalities. In the eyes of the law, your update may be viewed as a postnuptial agreement. One main difference between the two is when the agreement is signed (before or after the marriage begins).
As a general rule, the agreement you enter into with your spouse, or the modifications you make, must meet these requirements:
- Full disclosure: Spouses must be transparent in what they own and how much money they earn before a premarital or postmarital agreement can be updated or signed. With complex assets like businesses and stocks, this becomes even more essential. The objective is to make sure that both spouses understand the other’s standing before deciding how to handle property and finances in divorce.
- In writing and signed: Any changes you and your spouse make, or postnuptial agreement you enter into, must be in writing and it must be signed by both you and your spouse. A verbal agreement will not be enough.
- Both parties are represented by independent legal counsel: Each spouse should have their own respective legal counsel. Having separate counsel can help ensure a new or updated agreement is properly drafted and enforced.
- No coercion: It has to be clear there is no coercion. A good way to prevent this from becoming a problem is to give your spouse ample time to review the agreement with an attorney of their choosing and to make changes.
Clarifying How Liquidity Event Proceeds Will Be Treated
You may have similar events in the future that result in converting illiquid assets into liquid assets. Rather than signing a new agreement after each IPO or business sale, you and your spouse can clarify in advance how those proceeds will be treated. This allows you to determine how the asset will be classified (marital versus separate), how it will be valued, and how it will affect the original terms of your prenuptial agreement.
Taking this approach helps ensure the agreement remains legally sound and aligned with your evolving financial circumstances.
Addressing New Wealth Structures
A liquidity event such as the sale of a business or an IPO may result in new streams of income or more complex assets that your original premarital agreement did not take into account. These may include many of the forms of compensation discussed above. When modifying a prenuptial agreement or entering into a new agreement or postnuptial agreement, you and your spouse should address the following legal considerations:
- Classification of proceeds: How proceeds, income, and assets resulting from these events will be treated.
- Commingling concerns: Whether combining assets—even temporarily—will change their classification.
- Ongoing returns: Whether dividends, interest, or capital gains will be considered separate or marital property.
- Debt allocation: How any liabilities tied to new investments or business interests will be handled.
The goal is to avoid gaps between the agreement and your current financial landscape, reduce potential conflicts, and support informed decisions as your financial dynamics evolve.
Updating a Postnuptial Agreement
Just as you would revisit your prenuptial agreement after a major change in asset structure or income, you may need to modify your postnuptial agreement after a business sale or IPO. This is particularly important when those changes were not contemplated in the original agreement or its original terms.
Updating a postnuptial agreement typically requires mutual consent and compliance with applicable legal requirements to ensure the agreement remains legally binding. The process is similar to modifying a prenuptial agreement and focuses on making sure all assets, income streams, and financial responsibilities are clearly addressed.
When to Speak With a Kansas City Divorce Attorney
If you are a business owner or professional who has a prenup, you or your spouse have experienced a major financial or other life event since your marriage began, or you are simply trying to protect your business assets in divorce, it’s time to seek legal counsel. A Kansas City divorce attorney from our firm can also assist prospective spouses with significant assets who have questions regarding business valuation and divorce, especially if they do not already have a prenuptial agreement or they have one that does not account for these more complicated scenarios.
Your goal with a premarital agreement or postmarital agreement is to be comprehensive. So we can review your and your spouse’s existing financial situation, explain options for addressing events like the ones covered above, and then get to work drafting the terms of an agreement that protects you in the long term. This includes updating an existing agreement if that will better fit your situation.
Protecting Your Financial Agreements After Major Wealth Changes
Prenuptial agreements don’t happen in a vacuum; life continues to move forward, and that means you or your spouse could encounter significant financial and wealth changes that will prompt the need to review your existing premarital agreement. Let the Kansas City attorneys of Joseph, Hollander & Craft assist you. Call or contact us today to reserve a consultation. We also represent clients in Overland Park, Lawrence, Topeka, and Wichita.
Carrie E. Parker is a criminal defense and civil litigation attorney located in Lawrence, KS. Ms. Parker represents individuals and businesses during the investigation and prosecution of criminal charges in federal and state courts. She also represents businesses and individuals in complex civil litigation and property holders seeking the return of assets seized for forfeiture. […]
