Why Business Owners Should Consider Entering into a Marriage Contract Before Marriage

Marriage is not only a union of hearts but also a union of assets, responsibilities, and commitments. This union can be particularly complex for business owners, as it can involve substantial financial interests and assets built over years of hard work. While no one enters into marriage thinking about divorce, it’s prudent for business owners to consider the potential benefits of a prenuptial agreement, or “prenup.”

When married parties separate, it is necessary to determine the resolution of a division of property as between the parties. There is a mistaken impression by many people that all property is simply divided in half. If it was that easy, most people would not require legal counsel. A resolution of the property issues upon separation of spouses can be complicated. It is necessary to first determine the Net Family Property of each spouse (ie. the increase in the spouse’s net worth from the date of marriage to the date of separation). A spouse’s Net Family property is determined as follows: the value of all assets as of the date of separation (less) all debts as of the date of separation plus the spouse’s net worth on the date of marriage plus the value of all excluded property (ie. gifts, inheritances, damages for personal injury etc. – acquired during the marriage and traced to the date of separation).

Once the Net Family Property of each spouse is determined, the difference between the parties Net Family Properties is equalized so that the parties leave the marriage in relatively the same financial state.

Related: Is the division of property and assets always 50/50?

In this blog post, we’ll explore why business owners might want to enter into a Marriage Contract before tying the knot and how a good family lawyer can help safeguard their interests. The article is not intended as a legal advice. If you have questions about drafting your marriage contract or about other family law matter, contact Fine & Associates Professional Corporation, our trusted family lawyers in Toronto, for a free phone consultation.

Protecting Your Business

One of the most compelling reasons for a business owner to consider a Marriage Contract is to protect their business interests. In the event of a separation from your spouse, the value of a business would form part of your Net Family Property. If you do not have a Marriage Contract with your spouse, the increase in the value of the business during the marriage will be subject to division with your spouse..

A Marriage Contract can provide how the business will be treated in the event of separation from your spouse. The Contract can state that in the event of a separation from your spouse, the value of the business will be excluded from the calculation of your Net Family Property. Therefore, your spouse will not share in the increase in value of your Business during the marriage. In the alternative, you can state that your spouse will only share in a portion of the increase in the value of your Business during the marriage. The portion may increase as the duration of your marriage increases. The Marriage Contract allows you to contract out of the Family Law Act and be creative as to how you wish to deal with your assets in the event of separation. The Agreement gives your protection that you otherwise would not obtain.

Related: Are Prenups only for the Wealthy?

Preserving Financial Stability

Business owners often have a significant portion of their wealth tied up in their companies. In the event of a divorce without a Marriage Contract, the division of assets can result in the liquidation or refinancing of your Business or other assets in order to fund the equalization payment owing to your spouse. A Marriage Contract can ensure financial stability for an Owner of the Business.

Clarity and Fairness

Marriage Contracts provide clarity and fairness to both parties. They allow couples to openly discuss their financial situations, expectations, and how they intend to handle financial matters during the marriage and in the event of a separation. This transparency can help prevent misunderstandings and conflicts in the future.

Protecting Family Assets

In some cases, business owners may have inherited the business or assets from their family. A Marriage Contract can specifically address these assets, ensuring they remain within the family in case of a separation. This can be particularly important for preserving a family legacy.

Avoiding Lengthy Legal Battles

Divorce proceedings involving business owners can become protracted and contentious without a Marriage Contract. The value of a Business may be difficult to determine. Upon separation, it is necessary to retain a CBV (“Certified Business Valuator”) in order to determine the value of your business, which will form of your Net Family Property. The opinion of value is often subjective. Your spouse’s CBV may disagree with your CBV with respect to the value of the Business. A well-crafted Marriage Contract can streamline the separation process, potentially saving both time and money. It can also provide a level of predictability, reducing the uncertainty associated with divorce litigation.

Crafting a Strong Prenuptial Agreement

Your family lawyer can ensure that your Marriage Contract complies with all legal requirements and work with you to tailor it to your specific circumstances. You’ll need experienced legal advice on the implications of different clauses within the Marriage Contract. Your lawyer can explain how the agreement may impact your rights and responsibilities, in the event of a separation from your spouse. A well-crafted marriage contract must be capable of being enforceable in the event that the Agreement is challenged in the future by your spouse. In order to have an enforceable agreement, it is important for the parties to execute the Agreement voluntarily, with full financial disclosure (this may include a valuation of the Business on the date of execution of the Agreement) and that each party have independent legal advice.

Fine & Associates: Your Family Law Partner

At Fine & Associates, we understand the unique challenges that business owners face when it comes to separation and divorce. Our experienced family law attorneys have assisted many business owners to protect their assets. We work closely with our clients to create tailored solutions safeguarding their businesses, assets, and financial stability.

For business owners, a Marriage Contract can be a prudent step to protect their hard-earned assets and the future of their businesses. Entering into a Marriage Contract should not be viewed as a sign of distrust regarding your spouse but rather a responsible approach to marriage, ensuring both parties have clarity and protection in the event of unforeseen circumstances. If you’re a business owner considering a Marriage Contract or have questions about safeguarding your interests, please contact Fine & Associates at 416-650-1300 or email us at .

We are here to help you navigate this important aspect of your family law needs, providing peace of mind and financial security for your future.