Premarital Agreements to Protect a Premarital Business

courtroomFor any business owner, a premarital agreement, or “pre-nup” as they are often known, can be the most valuable form of insurance.

A premarital agreement is a written contract created by two people planning to be married. The agreement typically lists all of the property (including business interests) each person owns, as well as their debts, and states what each person’s property rights will be after they marry both in the event of divorce or death. Premarital agreements will often state whether spousal support (maintenance or alimony) will be paid after the marriage ends.

When it comes to business ownership and the event of divorce, it is not enough to rely on the fact that you owed the business prior to the marriage. That is not sufficient protection. Illinois has an established line of cases, developed in more recent history, that address non-marital businesses with retained earning that accrue during the marriage.

As a general rule, any retained earnings incurred during the marriage will be subject to division when the spouse is a sole shareholder and it can be argued that the business has success through the sole efforts, expertise, and abilities of that spouse. In re Marriage of Lundahl (1st Dist.) (2009).

In view of recent case law, it is especially critical for the majority shareholder to have a pre-nup to ensure that his or her intentions regarding the character of the retained earnings is not transformed over the course of the marriage.

A properly prepared pre-nuptial agreement could spare a business owner thousands of dollars in litigation and protect whatever value there is in the business.

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