For some people in California entering their first marriage, the concept of a prenuptial agreement carries a negative stigma. Not everyone at that stage in their lives can understand why they should elevate financial concerns above the romantic notions of marriage and living happily ever after. Some people are fortunate in never needing to face the answer to that question. However, other people will understand the answer after they have endured at least one divorce.
Prenuptial agreements are intended to remove the enormous uncertainty that is otherwise known as the “future.” These agreements serve many useful purposes, but one of the most critical is protecting a spouse’s interest in a close corporation or limited liability company. People entering into a second or third marriage may have invested a significant portion of their lives into making a particular business endeavor successful. Without a prenuptial agreement, they could lose a large portion of that success.
A prenuptial agreement can guard against any such outcome. The prenuptial agreement can specify how the shares of a close corporation (a corporation with only a few shareholders or a limited liability company) will be distributed in the event of a divorce. This outcome can be prevented by a prenuptial agreement that identifies the shares as separate property and not the joint property of the marriage. The difference is owning a controlling interest or owning only something less than a one-third interest.
A properly drafted prenuptial agreement can prevent such harsh outcomes and preserve the fruits of the labors of each spouse. Anyone who is concerned about the effect of a divorce on the ownership of stock in a small company may wish to learn more about how a prenuptial agreement can preclude any unwanted outcomes.