Premarital Agreements

Divorce Without One Can be Hazardous to Wealth

Premarital Agreements, also called Antenuptial Agreements, are almost essential for preservation of lifestyle and wealth in Minnesota Marriages. Although there are circumstances where these Agreements are not enforceable, they are generally binding in a Marriage Dissolution, sometimes referred to as "Divorce."

Premarital Agreements are particularly important to an owner or member of a business who marries for the second or third time. Should that marriage end in divorce, and the owner not have a Premarital Agreement, not only income earned and saved, but the increase in value of his or her interest in the business during the marriage is "marital property" which the other spouse will likely be awarded half of. The problem worsens the greater the increase in the business' value during the marriage, particularly if that interest is the parties' primary asset as it often is. Dealing with that marital interest in a divorce can create horrendous problems for both the spouse owning the business interest and the other owners. It may even result in the non-owner ex-spouse becoming a shareholder in the business or at least entitled to a distribution of profits. At a minimum, it will likely create duties of the business enterprise and its principals towards the ex-spouse of another member or shareholder. Although a properly worded Buy-Sell Agreement can avoid this awkward result for the other shareholders or members, it may not be beneficial to the owner involved in the divorce. A forced transfer or sale of part of an interest in a business organization is generally never desirable.

Furthermore, valuation of a business interest in a Minnesota divorce is extremely volatile. Any value of a business interest by an appraiser may ultimately be used by the Court in valuing and awarding such assets. Appraisers for each party can value the same business asset very differently. Most marital assets are divided equally between spouses in a marriage dissolution. Assuming the marital assets consist of the business interest and other assets more easily valued and readily marketable, an unrealistically high value of the business interest, awarded to the owner, results in an obvious unfairness where an equal amount of assets with more certain and fair valuations, and liquidity, are awarded to the other spouse. This harsh result can be avoided with a Premarital Agreement.

Premarital agreements are also used to preserve wealth for distribution on death to a spouse's children from a prior marriage. Use of these agreements for this reason predates their use in Marriage Dissolutions. Nevertheless, for an increasingly large majority of those considering Premarital Agreements, the most compelling and important reason is not estate planning, but to avoid very unpleasant results from a Marriage Dissolution without such an agreement.

"No Fault Divorce" in Minnesota is another compelling reason for considering a Premarital Agreement. This doctrine means that at any time during a marriage, a business owner can suddenly encounter a forced transfer or liquidation of either or both a business asset and savings and other liquid and secure assets when his or her spouse decides, for whatever reason, to leave the relationship. Furthermore, "no fault" in Minnesota means more than simply a spouse's right to seek a divorce at any time without any reason or grounds. It also means that a spouse's "marital misconduct" cannot be used by a Court to limit how marital assets are to be awarded to that party. The fact that a spouse wants out of a marriage to pursue a "soul mate" or marry someone they've "been waiting all their life for," cannot, by law, even be considered in awarding marital property in a Minnesota marriage dissolution. Regardless of the most blatant and emotionally destructive behavior, a spouse will still get one-half of the marital property, including the increase in value of the other spouse's business during the marriage.

This complete lack of control over hard earned wealth and the likely impairment of the comfortable life style it achieved, because of a divorce, is probably the strongest reason to see a lawyer experienced in Premarital Agreements and Minnesota Marriage Dissolution laws well before sending out invitations or booking the caterer.

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