Divorce for the businessman: what you need to know about prenuptial agreements

Divorce for the businessman: what you need to know about prenuptial agreements

It must be understood that the capital of a wealthy person cannot exist in isolation from his family

Wealth is not just a personal achievement of one person. Behind every successful person there is always a family, a strong foundation and foundation that keeps them on their feet.

We often forget this until some unpleasant event happens that makes us think seriously about the risks and prospects for us and our family capital.

External Risks

A family member of the business owner (spouse) bears the risk of vicarious liability with their assets, including their personal assets. If there are any financial problems in the business of one of the spouses, there is a possibility not only of losing the usual quality of life (even if temporarily), but also of losing the assets on which the whole family “stood as a stronghold” for many years. For example, to lose the house – a favorite family residence, where all family members gathered and family celebrations were held. The prospect is quite real and unpleasant.

If there are serious commercial risks or the need to raise additional funding, business partners may also require settlement of family assets. A partner is always working with a specific person, not his or her family. And the internal aversion to having family members of a partner in the business is understandable in this sense.

Internal Risks

We all hope that family relationships will always be great. But people can change over time, and relationships within a family can go bad.

Hardly anyone likes the prospect of being part of a family that is already broken, even if “formally” still in existence, just because the spouses failed to settle property issues between them in a timely manner. Clearly, the more profound the nature of the conflict within the family, the more principled and uncompromising will be the behavior of its participants.

In this situation, the sooner all property disputes are resolved in terms of guaranteeing the standard of living and security of the spouses, the better for all parties to the conflict.

Potential problems we have identified, and now about how to solve them.

Of course, the prenuptial agreement allows you to foresee the occurrence of such risks and minimize them. Possibilities of the marriage contract, as it was historically formed, are underestimated in our country. For example, the assets of the family can be divided not only by title (i.e., the person to whom they are registered), but also by their purpose. It can be used to fix business assets on one spouse and personal assets on the other. Thus, the prenuptial agreement allows you to secure some of the family’s assets by transferring some of the family property from the business spouse to the spouse-keeper of the hearth, separating potential business problems from “my house – my fortress”. And any business is always a risk!

Unfortunately, today in Russia, the prenuptial agreement is often perceived as an instrument of “violence of the strong side” in a marriage with a weak one. And, accordingly, an attempt by the “strong side” (the spouse-businessman, for example) to conclude a marriage contract is met with hostility by the “weak side”, as an intention to “deprive everything”, “put it in its place”. At such a moment, emotions take the upper hand over reason. It is necessary to understand that fear is one of the strongest human emotions. Unawareness, lack of understanding of something – a very strong basis for the emergence of fears for oneself and one’s future. People tend to be afraid of what they do not know or misunderstand.

Therefore, the proposal to conclude a marriage contract should be based on three basic principles:

Principle one is to explain the reasons and motives why the spouse is proposing to enter into a prenuptial agreement. In most cases, the motive is simple and straightforward: the desire to protect the family welfare.

For example, a situation like this: “Honey, you know I’m a businessman. My business takes out loans sometimes under my personal guarantee. In our common house, one half is mine, and the other half is yours. And if something goes wrong, the creditors can collect the debt from our joint property – take my half of the house. That means we have to sell the house. Of course, they will have to give you half of the money from the sale, but we won’t have the house. I also sell and buy a lot of shares in different companies. Sometimes it has to be done quickly. The companies are jointly owned by us and we have to get your consent every time. What if you’re on vacation? I’d lose the deal. Time in business is the most valuable and irreplaceable resource”.

The second principle – a clear explanation of the terms on which the marriage contract is concluded: this property and these assets “pass” to one spouse, and these – to another. Of course, the terms of the proposed contract must be exactly as I laid out in the first principle.

To give you an example: “I propose that we enter into a prenuptial agreement on the following terms: the business assets (shares in companies and the like) will be my property, and the real estate and other property for family purposes will be yours.

Of course, the terms of the prenuptial agreement should be as clear as possible, so that the other party had no reason to doubt and expect a catch.

The third principle is compensation. In dividing the common assets according to their purpose of use (“personal” and “business”), it will probably not be possible to divide them equally in terms of value. If we go back to our example again, it is obvious that the value of companies or stakes in them would be higher than the value of real estate. Therefore, it is logical and fair to offer the other party responsible for the home an additional compensation. Let’s say something like this: “I open a bank account for you and transfer $1 million to it. Then we record in the contract that this account and the money in it is your personal property.”

Russian law allows a marriage contract to stipulate the spouses’ obligations “as a condition.” That is, a provision for opening a personal account for the spouse may be as follows: “I open an account for you and transfer $1 million there, and if we have a child, I will transfer another $1 million to you, and it will also become your property.”

I am convinced that if you start discussing a prenuptial agreement, it should be in this order: “Reasons – Conditions – Compensation.” Then the negotiations will be more successful, with minimal emotion and maximum business efficiency.

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