Prenuptial Agreement for Family Business Simple Checklist
By: Martin M. Shenkman, CPA, MBA, JD
How should we advice our kids to prepare prenuptial agreements to protect the family business?
Planning an effective prenuptial agreement is really a process that requires the coordination of all of your planning professionals. The following is a checklist of issues to consider in endeavoring to coordinate your advisers:
What should be disclosed? How can your future spouse be provided for as required/negotiated under the prenuptial agreement? What role does insurance have to play to impact all financial planning? How can accounts be structured to conform with terms of agreement (e.g., assets that are immune, but income that is marital)? How to define income versus principal and how to structure accounts to avoid future accounting nightmares.
What terms should be included in the agreement? What type of sign off is on family business interests? Should your future spouse sign/acknowledge shareholder and other agreements? How insulated is a business if the child is actively involved? Should officer and director appointments be deferred?
At what point does a new spouse get named as a fiduciary? Will a boilerplate power of attorney undermine the prenuptial agreement? What should business entity governing documents include to address divorce risks?
Proper disclosure on the prenuptial of all financial assets.
How can life and disability insurance be used to protect the new spouse? What controls and safeguards?
Adversarial issues that undermine planning; impractical administration (e.g., lawyers draft classifications for income and property that no client can administer).
Parents will want to show minimum involvement and ownership in business by child/heir marrying but this will conflict with estate planning objectives of minimizing parent's involvement and control.
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