Why a business owner needs a prenup

Without a prenuptial agreement, an ex-spouse is entitled to part of the business.

Divorce can catch business owners unawares if they have not signed a prenuptial agreement, or prenup. An expert at Suomen Yrittäjät, the Finnish SME association, encourages business owners to prepare for risks in advance while they still can.

By law, each married spouse has a marital right to the other’s property. This marital right refers to the situation in which the spouses’ saved property is divided equally when their marriage is dissolved. Business property falls within the scope of this marital right, but the spouses can set the extent of the marital right with a prenup. That allows a business owner to protect their company property.

Without a prenuptial agreement, an ex-spouse can claim their share of the business. In that case, the other party may have to sell or divide their business to release the share to their ex.

Did you know this about prenups?

A prenup can be used to limit or remove marital right entirely, both unilaterally and bilaterally. The spouses can agree in the prenup that assets such as company shares, company property or shareholder dividends are excluded from the marital right. In this case, if the marriage is dissolved, company property is not considered when dividing property, nor can it be transferred to a business owner’s ex-spouse.

Source: Minilex

A specialist answers

Niko Nurmela, a specialist at Suomen Yrittäjät, urges business owners to make preparations for a possible divorce well in advance.

Why should a business owner consider a prenup?

A prenup protects a business and business operations in the event of divorce. It ensures the business can keep operating and can ease things like access to finance. It’s about managing and minimizing risks.

In this context, what is levelling compensation?

Levelling compensation means the payment the wealthier spouse pays to the other to ensure the property is equally divided. This amount is called levelling compensation.

What is the worst-case scenario without a prenup?

If a business owner does not have enough assets of other kinds to pay the levelling compensation, they could be forced to relinquish some of their company’s property to their ex. At worst, the company might have to be sold or a large loan might be needed to pay levelling compensation. The company can also end up with the ex-spouse as a new shareholder.

Can the division of property be agreed in some other way?

The division of property can be agreed on quite freely. The spouses can sign a prenup before or during the marriage and agree on matters such as a spouse having marital no right to the other’s property. They can also agree in the prenup that the company property, or a part of it, is not covered by the marital right, or for levelling compensation to be paid with other assets than company property.

What else should a business owner consider with regards to a possible divorce?

In addition to a prenup, from a company perspective, preparations should be made to ensure a limited company’s shares are protected with a shareholders’ agreement. In addition, it is worth inserting a carefully written redemption clause in the limited company’s articles of association.

Does the type of company make a difference?

The company’s value should always be the decider, but in a limited company, for example, there are more possibilities. In a limited company, the shares can be divided, or simple cash compensation can be paid to the other spouse. Another possibility in a limited company is that the spouses jointly own the company, but one of them wants to own it outright. In this case, one buys the other out with cash.

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