Love and Business
Marriage and Asset Protection Planning for the Business Owner determining how to protect the family business in the context of marriage and divorce.
By Joshua S. Miller
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ummer is upon us and that means wedding planning for many couples. This is a happy time for the couple, but for a family with significant business holdings, it may bring up difficult conversations regarding how best to protect the family’s wealth. In this article, we will explore potential strategies and tools available to the business owner and family to protect their assets before marriage and in the event of a divorce. Not every tactic will JOSHUA S. MILLER be right for every family, but each deserves careful consideration and a discussion with your advisor about how to use them effectively to protect your family’s wealth. For the purposes of this article, we will focus on asset protection and marriage and not risk from other potential creditors. A conversation regarding the family business, marriage and planning should start with this question: Is there a succession plan in place? The answer to that question will help guide the business owner in selecting strategies that will work best to accomplish goals regarding the fu6
ture of the business. In addition, having a long-term vision for the business provides a basis for understanding what needs to be protected, even if that vision includes the possibility of a sale to a third party. Each family business is uniquely its own ecosystem, but all family businesses have one dominant characteristic in common with each other – the overlap of family issues and business issues. This overlap involves unclear boundaries between the family and the business, deeply rooted and shared traditions (both business and family), and wealth transfer, with a vision for both individuals and the company. The owner of a successful family business faces significant challenges when the time comes to either transition the business to other members of the family or sell to a third party. Often, the family business is the primary asset and makes up the majority of the family’s wealth. In other cases, there are assets outside of the business; therefore, any plan needs to take into account the family’s total wealth. Once the business owner decided where to go, it will be easier to determine the best route to use to get there. Below are some strategies available to a business owner and the family to consider when
Prenuptial Agreements A prenuptial agreement is an agreement made between prospective spouses and entered into prior to a marriage that sets forth a structure for the division of assets and financial support upon the subsequent divorce and/or death of the parties. Like many things in life, timing is important. The conversation between parent and child about what a prenuptial agreement is and why it is important for the family should happen as early as possible. Hopefully, this is well before the child enters into a serious relationship. The goal is for any future spouse to understand early on that this is part of entering into the family and that it will not be a surprise a month before the wedding. With respect to the business owner, the prenuptial agreement can direct that business assets stay within the family line and that other assets be used to satisfy any requirements under the agreement. This is an agreement between two parties, so they have flexibility in deciding the terms of the agreement. It is essential that the agreement is fair when entered into and that both parties are represented by independent counsel. A properly executed prenuptial agreement can provide the business owner with the comfort that if the marriage does not work out, there is an agreement in place to protect the business and ensure that it stays within the family. Limited Liability Entities Family limited partnerships (FLPs) and limited liability companies (LLCs) are entities created by a group of individuals, generally for the efficient management of the underlying assets. These entities can also provide asset protection, particularly if the business owner is not the sole member, partner or manager of the entity. The chief attraction of FLPs and LLCs is that creditors generally cannot satisfy a claim with assets in the entity or force a liquidation. The creditor must obtain a “charging