A prenuptial agreement is a key factor in the survival of a family business after divorce

A prenuptial agreement is a key factor in the survival of a family business after divorce

With an absent family divorce business strategy and without the prior planning for this eventuality, the consequences of divorce on a family business can be detrimental. Divorce is probably the most difficult problem a family business can face. In addition to the family business, divorce also impacts non-family members working for the family's business (i.e. employees).

Prudent and forward thinking individuals take steps to develop a strategy to mitigate problems and preserve the family business. This can be accomplished using a professional prenuptial agreement designed specifically to protect the family business in case of divorce.

Prenuptial agreements do not prevent the causes and effects of divorce. However, they can help reduce the legal disputes resulting from the divorce. Many families running a business do not take advantage of a prenuptial agreement. In fact, few families actually use a prenuptial agreement, possibly due to the lack of foresight, and also because of the uneasy nature of this sensitive topic.

Using a prenuptial agreement has many advantages some of which are the following:

1. Ensuring the continuity of the business: Generally a "quick and easy" divorce can be attained when there are no children and a few assets are involved. This is not the case however if the divorcees are business partners. The divorce can become complicated and costly to resolve, in terms of accounting and legal fees. This may result in the liquidation and dissolution of the business.

With a prenuptial agreement specifically addressing the family business, the rights and obligations of each party in the business are clearly stipulated and legal arrangements are made to ensure the continuity of the business and the viability of its operation through its owners (former spouses) as business partners.

2. Protecting Employee Morale: Employees working in a family business are also affected negatively by a bitter divorce battle between the business owners. This can lead to low employee morale and low productivity which harms the financial wellbeing of the business.

A prenuptial agreement will thwart any disruption in the day to day operations of the family business by eliminating legal battles between the owners/former spouses and therefore protecting employee morale.

3. Avoiding conflict between heirs: Adult heirs (adult children in a marriage) involved in the family business may take sides in a legal dispute between parents. This can be destructive to the family business and may lead to its financial demise.

The prenuptial agreement forces the heirs to abide by the legal boundaries and covenants stipulated in the contract, thus eliminating conflict. This protects the continuity and stability of the family business.

The use of prenuptial agreements is extremely important nowadays especially when families own and run a business. In addition to the personal assets, a prenuptial agreement minimizes legal disputes by stipulating the business rights and obligations of each party and by laying down the division of the family business between the former spouses. This ensures the future continuity of the family business and the sustainability of its operations.

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