Prenups for Business Owners
Your business is more than an asset. Here is why a financial agreement is worth thinking about carefully.
Why businesses are different
Most assets in a relationship can be valued and, if necessary, divided. A property can be sold. A share portfolio can be split. Superannuation can be separated.
A business is different. It may have been built over years. It may employ other people. It may involve co-owners, investors, or clients whose interests extend well beyond the couple. Trying to divide or liquidate a business as part of a property settlement can be devastating — not just for the business owner, but for everyone who depends on the business.
A financial agreement removes that uncertainty before it arises.
What the agreement can establish
A financial agreement can document that the business — its equity, its value, and its ongoing income — belongs to the owner as separate property.
This applies whether the business was started before the relationship or during it. It can address:
• Equity or shares in the business • Goodwill and brand value • Business property and equipment • The business's bank accounts and financial reserves • Future growth in value
The goal is to prevent the business from becoming a negotiating chip or a forced sale scenario in a separation.
Co-owners and investors
If you have business partners or investors, they have an interest in this too. A separation that results in a court order affecting ownership or control of the business can have serious consequences for people who had nothing to do with the couple's relationship.
Many shareholders' agreements and partnership structures actually contemplate this scenario and may require or expect that individual partners have financial agreements in place. If you have co-owners, it is worth having the conversation with them — and with your own legal adviser — about what protections are appropriate.
Businesses started during the relationship
Business owners often assume that a financial agreement is only relevant if the business was started before the relationship. This is not the case.
A business started during the relationship — including with the support, direct or indirect, of the other partner — can be considered relationship property. If one partner worked in the business, managed the household to allow the other to focus on it, or contributed financially, that contribution may be relevant to a property settlement.
A financial agreement can address how the business will be treated regardless of when it was started, and can acknowledge the other partner's indirect contributions without bringing the business itself into the property pool.
Valuation complexity
One challenge with business interests is that valuation is often uncertain, particularly for early-stage businesses or professional practices. A business that is worth little today may be worth substantially more in ten years.
A financial agreement does not need to fix a precise value. It can document the business as separate property and address how it will be treated on separation — including any agreed approach to valuation if the agreement is ever triggered.
Your lawyer and, if necessary, a valuation specialist can advise on how to address this in your specific situation.