Prenuptial agreement for all partners / shareholders

[Jason Barnett]

People will often create an LLC or a Corporation in order to protect their legal interests. However, I was recently reminded of one area that gets overlooked: prenuptial agreements. These are important for various reasons:

1. Protection of ownership interest in company. Corporations are controlled by ownership of stock and LLC's are usually controlled by percentage of ownership as well. If one of the major owners becomes divorced, then you could end up with a very angry ex as one of your business partners.

2. Protection of assets of company. Even if your ex doesn't try to take over control of the company's management, they can still put a large pinch on you by demanding their share of the profits due immediately (for LLC's).

3. Division of liabilities incurred before marriage. This recently came up while I was discussing a potential partnership. We discussed the financial history of the partner's wife and it quickly became clear that we did not want her prior FORECLOSURE to hamper the lending abilities of the company.

There is no way to kill the mood faster than to say the word "prenup" to your significant other. However, as real estate investors you have to protect yourself as well as your partners.