The Role of Postnuptial Agreements in Asset Protection for Florida Entrepreneurs

What is the Purpose of a Postnuptial Agreement?

A postnuptial and a prenuptial agreement are quite similar. The biggest difference is that a postnuptial agreement is made after a marriage, while a prenuptial agreement is constructed prior to the union. These agreements allow both spouses to decide on important matters that may arise in the event of divorce, including property division, alimony, and more.

What Can Not be Included in a Postnuptial Agreement?

Child support and custody arrangements are the main terms that are not allowed to be included in postnuptial agreements.

While other states differ in permissibility for postnuptial agreements, Florida will allow them unless the following factors are relevant:

• Either spouse did not provide thorough financial disclosures or assets to a spouse who had no prior knowledge of the economic status.
• One spouse failed to obtain legal counsel during the negotiation and approved the contract because of an inability to retain counsel.
• Either spouse was coerced into the agreement.
• The agreement heavily favors one spouse over the other and is considered unconscionable.
• The contract did not uphold the applicable legal formalities required.

What Criteria Must be Met for a Valid Postnuptial Agreement?

The State of Florida recognizes these types of agreements as enforceable if they meet the following criteria:

• Voluntary execution: Both parties must sign the document willingly and without coercion, intimidation, or undue pressure.
• Full and fair disclosure: Each party must ensure complete and transparent financial situations, including income, assets, and liabilities. The concealment of assets or income may heavily jeopardize the document’s enforceability.
• No fraud or duress: A court will not enforce an agreement made through fraud, misrepresentation, or significant duress.
• Written and signed: State law requires postnuptial agreements to be submitted in writing and signed by both spouses. It is typically a good idea to also have the document notarized, though this is not required.

What are the Risks to Entrepreneurs Who Do Not Have a Postnuptial Agreement?

The absence of a postnuptial agreement for married entrepreneurs may put themselves and their businesses at risk in the event of a divorce. Some of the following examples will further elaborate on those risks.

Disruption to the Business During Divorce

During divorce, a family business may be subjected to equitable distribution along with the rest of the marital property. This can lead to uncertainty and instability for the company.

Legal battles may lead to daily operations suffering, resulting in:

• Decreased productivity
• The loss of essential employees
• Unsteady relationships with clients and partners

Financial resources may be diverted to covering legal fees instead of promoting growth within the business.

Uncertainty Regarding Division of Business Liabilities and Assets

Dividing business assets can become complicated in the absence of a postnuptial agreement. Florida law instates equitable distribution rules for dividing marital property, which may not be ideal for the couple’s wishes.

Problems encountered may include:

• Disputes regarding valuation
• Disagreements involving ownership percentages
• Allocation of business debts and liabilities

One spouse may be entitled to a substantial portion of the business despite minimal involvement. This can spur difficult conversations, such as selling the company or buying out the spouse.

Negative Implications for Business Partners, Employees, and Clients

A divorce in a family-owned business can create unsteadiness throughout the enterprise. Partners may experience unexpected changes in ownership structure or workflow.

Employees may also experience:

• Job insecurity
• Changes in management
• Changes in company culture

Clients may lose confidence in the business’s stability, leading to lost contracts or a reduction in sales. Uncertainty may damage the company’s reputation and other long-term prospects.

What are the Benefits to Entrepreneurs Who Have a Postnuptial Agreement?

Many of the benefits of a postnuptial agreement have already been discussed. Business owners typically have more assets to consider than non-business-owning couples.

More benefits of a postnuptial agreement will be discussed in greater detail below.

Protection for Business Assets From Forced Division

The lack of a prior agreement may result in the company being subjected to division if it is considered marital property. This division may cause a forced sale of shares, disruption of operations, and the loss of controlling interest.

The Preservation of Business Value and Continuity

If a buyout is required for division, it could deplete company funds or necessitate extra debt. A postnuptial contract will establish an agreed-upon valuation method or limitation for claims on future appreciation, which will ensure stability for the business and its shareholders.

Avoiding Expensive Litigation

Disputes regarding the classification, valuation, and division of business assets can add expensive and time-consuming litigation to an already costly and complicated process. A postnuptial agreement provides an outline for handling these issues before they arise.

Predictability and Emotional Security

By having an outline and resolution in advance, couples are able to continue their marriage with an understanding of expectations, which will reduce stress and foster trust between the two by knowing that the company is safe if the marriage fails.

What Should Entrepreneurs Include in a Postnuptial Agreement?

A solid postnuptial agreement will protect both the couple and the business by establishing rules for ownership, valuation, and asset division while avoiding future conflicts.

The following elements should be considered for all entrepreneurial couples:

• A clear definition of the role of each spouse and ownership stakes within the company
• A valuation method for the business should a separation or divorce occur
• Allocations for buying out a partner’s share or dividing business interests
• Protections for all intellectual property, including trade secrets and confidential information

Do You Need an Attorney?

A postnuptial agreement offers protection for entrepreneurs. If you and your spouse would like to take the next step in safeguarding your business, call the Law Office of Erin Morse today at 417-900-7451 or fill out a contact form to schedule your strategy session.