You can protect a family business in the event of divorce in three ways, during one of three phases of the relationship, with the cost and expense of protection rising upon entering each new phase and manner of protection.  When it comes to protecting a family business, procrastination is costly.

      My law firm, Smith Strong, PLC, headquartered in Richmond, Virginia, includes three distinct practice areas:  family law (divorce/custody/pre- and post-marital planning), estate planning (wills/trusts/asset protection), and estate litigation.  As managing partner, I sit at the intersection of family business protection planning and guide clients through three distinct phases of business protection planning.  I also witness the ravages on family businesses that fail to plan and are now subject to division or severe loss in the event of divorce of an owner.

There are three distinct seasons or phases of family business protection, and it is optimal to complete protectionary planning of a family business as early as possible:  1) premarital; 2) post-marital, but pre-separation; and 3) post-separation, pre-divorce.  
Correspondingly, there are three methods of family business protection corresponding with the season the business-owning spouse finds themselves in:  1) Premarital Agreement; 2) Post-Marital Agreement (pre-separation); and 3) Property Settlement Agreement (post-separation).
Let’s walk through each one, with in-the-trenches analysis and visualization, from my years of experience in assisting clients along all three approaches.


Premarital Agreement:  The Best Family Business Protection Plan is Through a Premarital or Prenuptial Agreement

      Estate planning attorneys will often comment, “If you don’t plan your own estate, the government has a plan for you, and you won’t like it.”  And fellow estate planning attorneys, take heed to add this turn of phrase when addressing family business protection: “If you don’t create your own premarital agreement, the local courthouse has a plan to divide your business and assets in the event of separation, and you will most assuredly not like it.”
We attorneys must have the same conviction and assurance in recommending premarital or prenuptial agreements for family business protection to clients as we do in communicating the necessity of proper estate planning.
And parents of children with family businesses—you are the attorneys’ greatest ally.  The parent that insistsfrom an early age (and stage of the child’s relationship) that the child protect the family business with a premarital agreement—and volunteers to pay for it if necessary—is likely to create the surest path to actually accomplishing this task.
The challenge, of course, is in having a difficult conversation on the subject of a premarital agreement with a person you love, and not wanting to upset them.
Here’s how to visualize that conversation and walk them through what the premarital agreement will look like:
You know how I have this family business.  It’s important to create stability, I owe the business that, as an owner.  And so, if the unexpected comes, I have to create a plan that my business can rely on. 
The premarital agreement will lay out the family business, property, and accounts that remain in just your name or just my name remain our separate property, even as it accumulates during the marriage.  Property and accounts that we jointly title, or buy together in both of our names, shall be divided 50/50 in the event of separation.  It’s an easy rule to keep straight, and one that keeps everyone on the same page.

Husband/Partner A (100%)

Marital (50/50)

Wife/Partner B (100%)

Titled in just my name

Jointly Titled

Titled in just my name

Pre and Post Marital Prop


Pre and Post Marital Prop

Family Business

+ Lump Sum or Payment?

Investment Prop./Rental

And consider adding:  
For each year of marriage, a lump sum is added such that in the event of separation, there is an amount-certain to assist in a transition. 
Most premarital agreements also address alimony or spousal support.
Keep in mind a few general rules that may vary based upon your state of residence and practice:  
·      Remember, future children are not party to the contract of a premarital agreement, so steer clear of overdoing it, that is, also noting what child support will be in the event of divorce.  Child support is figured out after separation by a standard formula based on actual income and days of visitation at that time between the parties. Smith Strong, PLC maintains a Virginia child support calculator on our website.
·      Plan in advance: Do not wait until the week (or even the same month if possible) of the wedding to discuss, draft, and sign a premarital agreement.  Plan early with plenty of time for the other party to process and sign.
·      Disclose all assets as a Schedule A or Exhibit to the Agreement:  Yes, the other party is waiving their interest, but disclosure of all assets, including a family business and its accounts, is a critical component for enforcement later, as important as planning early without pressure.
·      Ensure the other side has independent counsel if desired, but is not required (in my experience, this is often waived).  
·      Sign before a notary public, with independent counsel present if retained.
·      If the wife is a foreign national, ensure the signing meeting is recorded to note understanding and acceptance of the terms.
·      Remember:  Enforcement later requires disclosure of assets and time to process/sign the Agreement without pressure or duress, with private legal counsel if requested

Post-Marital Agreement:  Business Now Growing and In Need of Protection, While the Marriage Remains Strong

     I had a business owner in his 40s recently reapproach me.  I completed a premarital agreement with him in his 20s to protect over one hundred rental properties.  The marriage remained strong, and they now had children.  I counseled him, now with 300 properties, to ensure for every five years of marriage, his wife would receive a designated, high-quality rental, completely paid for, in addition to a growing lump sum, and half of any jointly titled property and jointly titled accounts.  This ensured, in a post-marital agreement, that his spouse felt she too shared in the fruits of his business success, and further bonded the couple now in the throes of raising children, while the Husband continued to grow his business.  


A post-marital agreement, whether protecting a family business for the first time, or building upon a pre-marital agreement, does not have to have negative connotations. Done right, it can celebrate the relationship and addto the spouse’s feeling of growth and A relationship is an organic, living thing existing between all too human people.  Let me add to your share is a tremendously powerful bonding agent.  


Business owners:  Ultimately you have to live with them. Resentment of an ever-growing pot while they languish and endure responsibilities of marriage may be legally sound, but likely not a recipe for a happy marriage. 


Consider a post-marital agreement as a generous renewal of your love, building upon a relationship that continues to grow and mature.


And candidly, if a business owner failed to complete a premarital agreement, frankly, they will likely have to be generous to ensure a spouse will actually agree to a post-marital agreement.


Notice those that planned early, by the way, by coming back to the table to be more generous with their spouse, how they are creating a happier moment and bond, versus the failed to plan spouse, perhaps giving the same thing, but appearing very differently in limiting what can be taken.  The wisdom of early planning only becomes more obvious as you consider this perspective.


A post-marital agreement takes on the same structure as a premarital agreement, but likely involves giving more to the other spouse to incentivize agreement.


Post-marital agreements are often met with skepticism—so business owning spouses, prepare to be generous so it’s seen as a win-win that allows your spouse to carry on living in the event of a separation.


Property Settlement Agreements:  Better than Court, and Often at a High Cost from Other Assets


Post-separation, without a prior agreement in place, the business owner is seeking to protect the business, and knows, it will come at a price depending on the value and ownership stake in the family business.  


A Property Settlement Agreement is a negotiated document that outlines the terms of property division for a divorce.


So how to preserve and protect the family business after separation without a prior agreement in place?  Be prepared to surrender the business owner’s share of other assets, such as the marital residence, or an investment account, or chiseling off their portion of a retirement account, oftentimes on top of some form of spousal support or alimony, if the divorcing spouse stopped working to care for children.


I represented the Chief Operating Officer of a prominent defense contractor last month following his separation.  He was paid, in part, in a growing share of stock in the company, becoming a part-owner in the company.  Though a private company, if sold one day, the stock could amount to several hundred thousand dollars, or more, though not guaranteed.  To ensure preservation of this interest with him, he surrendered his interest in the marital residence, valued at several hundred thousand dollars, in addition to alimony for approximately half the length of marriage.


He noted, as we waited in a conference room as a mediator reviewed the Agreement with her lawyer in the third settlement conference, and in the fourth hour of that meeting, that he wished, as he grew with the company, he considered a post-marital agreement, still giving her the interest in the house, but without eight months of attorneys’ fees in battling over the same outcome.


Property Settlement Agreements are the most expensive, and final stop in protecting a family business, but be aware, though costly, the business owner should rarely subject the future of their business to a judge, who, on a whim, could cripple the business with staggering debt imposed by a poorly decided property-division order, known as “equitable division of property” in a final decree of divorce.

H. Van Smith practices family law, estate planning, and estate litigation at Smith Strong, PLC in Richmond, Virginia, receiving both the Super Lawyers' Rising Star and Virginia Business Magazine’s Legal Elite designation, 2014-2021.  Learn more at

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