News reports about celebrity marriages and divorces are common. But prenuptial agreements are not just for celebrities. While asking your sweetie to sign a prenuptial agreement prior to the wedding is not very romantic, such an agreement is a critical tool in asset protection, one that every business owner should consider.
In New Hampshire, marital property will be divided equitably by the court. Equitable means that the property is fairly divided. All property, no matter whose name it is titled in, is thrown into one “pot” at the time of divorce and then divided equitably by the court unless there is a valid prenuptial agreement dictating otherwise. New Hampshire’s legislature has provided that absent fault, the starting point or presumption for the division of property in a divorce shall be 50-50. The statute describes many factors which may affect how property should ultimately be apportioned. The factors established by the legislature and followed by the court in guiding how property should be divided basically are aimed at a 50-50 division where the parties have both contributed to the marriage through the accumulation of assets and production of income as well as through the maintenance of the home and rearing of children
Stock in a family business owned by one spouse is marital property, and absent a valid prenuptial agreement would technically be subject to division pursuant to New Hampshire’s statutes. As a practical matter, it is unlikely that a court would order one spouse to transfer shares in a closely held business to the other spouse upon divorce. Although the court certainly has the authority to do so, judges and marital masters are mindful that post-divorce joint ownership of a business venture is unlikely to succeed. Accordingly, the court is likely to award all shares of stock in a closely owned family business to the spouse related to that family. The next issue which must be addressed is the value of this asset. Valuation is often hotly litigated. In order to effectuate an equitable distribution of the property in the marital estate, the spouse who will not receive shares of the stock must be awarded other assets equivalent in value. Accordingly, it is in the stock-owner’s interest to argue that the shares are not very valuable, while it is in the other spouse’s interest to argue that they are very valuable. A shareholder agreement may provide guidance to anyone seeking to value the stock ownership.
A prenuptial agreement can not only protect an ownership interest in a closely held business, it can also provide a formula which the parties agree to use to value such stock in the event of divorce, whether by reference to a shareholder agreement or by including some formula within the body of the prenuptial document. The court will consider the valuation formula described in a shareholder agreement as a substantial factor in determining the issue of value. The shareholder agreement may provide the family court with important parameters to consider in assigning value to the shareholder spouse’s stock.
Ownership of a closely held business is but one reason to consider a prenuptial agreement. If drafted fairly, prenuptial agreements may protect the interests of both spouses. The parties may wish to protect certain assets or income upon death or divorce for many reasons.
The content of a prenuptial agreement can vary from limited agreement which addresses only a specific asset to an agreement which addresses all present and future property, assets, income and spousal support both during the marriage and in the event of divorce. Some agreements are structured so that they change over time, depending upon the length of the marriage. Some agreements will provide the spouse with an increasing right to a larger share of the marital estate the longer the marriage lasts. Other agreements may apply only in the event of death or only to certain assets acquired before the marriage, or may even terminate upon a date certain or the occurrence of a specific event. Obligations with respect to support of children cannot be addressed in a prenuptial agreement, and upon divorce will either be decided by agreement of the parties or by order of the court. A prenuptial agreement can assist by eliminating uncertainty, contention and costly, lengthy or hostile divorce litigation.
Once the decision has been made to enter into a prenuptial agreement, the parties must exchange complete lists of all assets. In New Hampshire, a legally enforceable prenuptial agreement must be in writing, must be voluntarily entered into after a full and complete disclosure of all relevant facts. In the event of a challenge to the validity of a prenuptial agreement, the court will closely scrutinize whether each party fully understood the agreement and whether there was full financial disclosure. The court will review whether the agreement was obtained through fraud, duress, mistake, misrepresentation or non-disclosure of a material fact. New Hampshire courts considering disputes about the validity of prenuptial agreements have emphasized that each party should obtain legal advice in the drafting and execution of a prenuptial agreement. In addition, timing is important. An agreement entered into less than one month before the wedding may be difficult to enforce.
Hiring a lawyer to draft a prenuptial agreement costs money, of course, but if you are considering marriage, and have assets you wish to protect, a prenuptial agreement is a wise investment.
Jeanmarie Papelian is a Director in the Litigation Department of McLane, Graf, Raulerson & Middleton, Professional Association. She serves as co-chair of the firm’s Domestic Relations Practice Group and can be reached at (603) 628-1355 or by email at email@example.com. The McLane Law Firm is the largest full-service law firm in the state of New Hampshire, with offices in Concord, Manchester and Portsmouth.