Wednesday, May 11, 2011

Prenuptial Agreements: Why Jessica Simpson Might Actually Be Smarter Than The Rest of Us

Jessica Simpson is currently planning her second marriage with former NFL player, Eric Johnson. This time around Simpson plans to do some things a little differently. Not only has she managed to figure out that televising her wedding, and spending the first two years of marriage on a reality show, are not good ways to solidify the success of a marriage, but she plans to start with the ultimate asset protection device for every business owner—a prenuptial agreement.

The first time Simpson was married she thought Nick Lachey of the mega-band 98 Degrees (read my sarcasm) was her ticket to the good life. At that moment in time, maybe he was. The two of them had no idea she was bound for more than cheesy pop singles, a tagline about buffalo wings, or even a role as Daisy Duke. Today Jessica Simpson’s shoe and handbag empire is generating annual sales of around $1 billion. So what if she can’t sell albums to save her life, she has figured out how to provide for her family for generations. And this time around, she is smart enough to protect that. Or at least she was smart enough to listen to someone who told her to protect that.

Prenuptial agreements are not just for Jessica Simpson and other celebrities; they are really useful tools to provide for what happens to business assets at death or divorce. Without a prenuptial agreement, you face the possibility of running the business with your ex-spouse, your daughter’s ex-spouse, or the ex-spouse of your business partner. Even if you own the business completely in your name, and have owned the business since long before you were married, any increase in value due to your own efforts is likely subject to division at divorce. If you do not create the plan in what we lawyers call an “antenuptial agreement,” the laws of the state you live in will do it for you.

A common misconception about prenuptial agreements is that they are always in contemplation of a divorce and not a great way to start a marriage. More often than not, prenuptial agreements are done in contemplation of the division of assets upon the death of a spouse, not divorce. Even on death there are very good reasons to segregate business assets in a trust, pass them on to the child that currently manages the business, or to ensure the division and control is spread equally among a number of beneficiaries. Often the prenuptial agreement has nothing to do with restricting the spouse from enjoying the value of the business assets, but rather is about ensuring the assets stay with the family and are properly managed after the death of the business owner.

Signing a prenuptial agreement does not mean that you can never share the success of your business with your spouse. You can always provide more for a spouse at death in a will or trust, and most people do. A prenuptial agreement will simply keep the business assets safe and provide the only mandatory division of property at divorce or death. In addition, by law, prenuptial agreements must be fair to both parties when they are drafted and must be fair to both parties when they are implemented. This often means that even the non-business owner spouse, or the non-moneyed spouse, will be provided for fairly given the parties’ circumstances before the marriage, changes of circumstances during the marriage, and the length of the marriage.

What I commonly tell clients when they are thinking about whether or not to complete a prenuptial agreement is that this is not about hurting each other or pre-planning a divorce, but really this agreement is just another piece of your overall asset protection and business succession plan.

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