In love and owning a business in Minnesota? You may need a prenup

Love is all around, but business is business.

Before walking down the aisle — well before — a business owner may want to consider asking their beloved to enter into a prenuptial agreement.

"Business owners, in particular family business owners, are really great candidates for prenups," said attorney Lisa Spencer, immediate past president of the Minnesota chapter of the American Academy of Matrimonial Lawyers (AAML).

Besides business owners, people in their 40s and 50s who have gotten divorced and are considering a second marriage are among those entering into prenuptial agreements, said attorney M. Sue Wilson, a former president of Minnesota AAML. Those with large estates or inheritances to protect also may consider prenuptial agreements.

A prenuptial agreement is just another type of contract — referred to in state law as an antenuptial contract — that an engaged couple signs before marriage.

Spencer recommended broaching the subject of a prenup as soon as possible.

"In the event of death, you might have a family business and you don't want an unintended owner all of a sudden," she said.

Timing also matters to the courts. In 2018, the Minnesota Supreme Court affirmed a lower court's finding that one prenuptial agreement was invalid because it had been "procured by duress."

In that case, a man presented his fiancée with a prenuptial agreement three days before they were to depart for a destination wedding. He threatened to call off the ceremony unless she signed.

"It's a really hard thing to talk about, but it's better done now than down the road," Spencer said. "Don't wait until even a few months before the wedding. You don't want it to interfere with the wedding plans. That's the worst possible thing, to be working on those things and working on a prenup."

A prenuptial agreement can specify what property is nonmarital, generally property that one spouse or the other owned before the marriage, including a business or shares in one.

Marital property includes almost anything each spouse acquires during the marriage, including money, real estate, cabins, household goods, and furniture and jewelry, according to a Minnesota Judicial Branch list.

"The basic premise of a prenup is to modify the law," Spencer said. "People have certain rights under the law the minute they get married and they can contractually alter those rights. But they have to do it with their eyes wide open, full disclosure. They have to know what they're getting into, and the idea is to treat each other fairly."

When a couple divorces without a prenup in place, Minnesota law directs the courts to make a "just and equitable division of marital property." An "I get everything" prenup won't hold up in court.

"We're an equitable division state, meaning fair but, oftentimes, whatever's marital gets divided equally," said attorney James Vedder, Minnesota AAML president-elect. "The antenuptial agreement will help you at least establish that you had this business premarital, that it had a value that the parties agreed upon at that time."

The prenuptial agreement also can address the increase in the value of the business over time. Vedder likes to use percentages so that, in the event of a divorce, a non-owner spouse would get, for example, 10% of that increase if married one to five years or 20% for five to 10 years of marriage.

That approach helps to protect both sides. An owner gets a return on investment without having someone take over a partial ownership or be awarded a large sum of money that would damage the business, Vedder said. At the same time, if the business has done well during the marriage, the non-owner spouse receives some share of that increase.

Neither side needs a lawyer to enter into a prenuptial agreement, Vedder said. But he strongly encourages each side to have an attorney to increase the enforceability of the agreement. A law firm or law office also can keep a digital copy of the original agreement.

Each side entering into a prenuptial agreement also has to engage in full financial disclosure, Vedder said. That means exchanging financial statements with assets, liabilities and income, so each side understands what it would receive or potentially give up in a divorce.

Attorney Tifanne Wolter, a member and past chair of the Minnesota State Bar Association's Family Law Section, said she attaches copies of bank and retirement account statements to prenuptial agreements. Without those statements, couples married 10 years ago who get divorced now may have difficulty obtaining statements going back more than six or seven years from online accounts.

"Marital property is anything that was acquired during the marriage," Wolter said. "In order for it to be nonmarital property, the person who's saying that this is my nonmarital property, they have the burden to prove that. If you don't have the documents and you can't prove it, you may be out of luck. Going back and trying to trace what your interest in those accounts was is becoming increasingly difficult."

Michael Dittberner, legislative chair of Minnesota AAML, said the chapter is proposing legislation to clarify antenuptial law because of confusion stemming from the Supreme Court's 2018 ruling on the prenuptial agreement found to have been obtained under duress.

More divorce cases are settling now rather than going to trial because of the uncertainty resulting from that ruling, Wilson said. "It changed the world about whether a prenup is enforceable," Wilson said.

With its ruling, the Supreme Court tossed out what it called the "patently one-sided" agreement that called for the husband, who had significant assets that increased in value during marriage, to retain those assets while his wife "would leave the marriage with very little."

As a result of the ruling, Wilson said, "You can't be certain that the increase in value would be excluded. You could try but most of us are telling clients that you really don't know exactly what's going to happen. … Nobody wants that kind of crap shoot."

Todd Nelson is a freelance writer in Lake Elmo. His e-mail is todd_nelson@mac.com.