Divorce is always a major event, but – as we have written before - for entrepreneurs it usually brings additional complexity. Many entrepreneurs have had prenuptial agreements drawn up prior to their marriage or postnuptial agreements during marriage, with the main purpose of protecting their business assets. However, settling prenuptial or postnuptial agreements with a regular setoff clause upon divorce can be a challenging process, with both business and personal interests at stake. In this article, we will discuss some of the key issues involved in settling prenuptial or postnuptial agreements with a regular setoff clause when entrepreneurs dissolve their marriages.
Understand your prenuptial or postnuptial agreement and the regular setoff clause
The first and most important aspect of a settlement is a thorough understanding of your prenuptial or postnuptial agreement and the regular setoff clause. The contents of the prenuptial or postnuptial agreement are the basis for the division of assets and income. Therefore, it is important that you have the terms drawn up by a specialised lawyer or notary, who will thoroughly go through your wishes and situation with you and then ensure a tailor-made approach.
A regular setoff clause is a clause included in prenuptial or postnuptial agreements in which spouses agree to regularly (periodically) set off their income and assets with each other. The purpose of a regular setoff clause is to equalise the financial interests of both spouses during the marriage and to ensure that both partners can fairly benefit from the income and assets acquired during the marriage.
The regular setoff clause can be designed in different ways, but in general it comes down to spouses agreeing to periodically (e.g. annually) calculate the amount of income and assets generated during that period. The amount not spent on household expenses during this period is considered surplus and should then be divided between the spouses. If the spouses fail to do so during their marriage, the law attaches consequences. In that case, a set off must still be made at the end of the marriage. Often, it will be impossible at that moment to find out exactly which income and assets should have been set off. If so, the former spouses must share all their belongings with each other. This is because the law then assumes that all assets were obtained from income that actually should have been set off.
As an entrepreneur, it is therefore essential to know which assets and income fall under the regular setoff clause and which assets and income are disregarded.
Asset and income set-off
As mentioned above, the regular setoff clause requires spouses to set off their income and assets with each other on a regular basis. This means evaluating both business and personal financial data.
Many business owners think that because of the prenuptial or postnuptial agreement, the business is out of the picture when settling a regular setoff clause upon divorce. However, if the company was (partly) acquired with income or assets that should have been set off, or if the prenuptial or postnuptial agreement includes company profits in the income to be settled, the company is suddenly involved in the execution of the setoff clause. In the latter case, so-called "accumulated profits", i.e. profits that remained in the company but could have been distributed, should also be taken into account.
For many entrepreneurs, the valuation of their company is already a crucial issue in case of divorce, but in the context of a regular setoff clause, determining the value of the company is even more complicated and once again requires the expertise of a valuation expert and a specialised family lawyer. This is essential to ensure a fair and accurate settlement of the business assets while not losing sight of business continuity. It is therefore wise to engage a specialist to correctly map out the settlements, especially if your business has complex financial structures.
Negotiations and agreements
Upon divorce, both parties often have to negotiate the division and/or settlement of income and assets, including business assets. It is good to aim for an amicable settlement to avoid unnecessary legal costs and conflicts. Drafting an agreement setting out the arrangements is very important to protect the rights and obligations of both parties. For everyone, but especially entrepreneurs, it is advisable to seek timely legal assistance from a lawyer or mediator with expertise in family law. A specialised lawyer or mediator can guide you in understanding the legal aspects of the settlement, protect your rights and interests and help you make informed decisions.
Then, in the unlikely event that an amicable solution cannot be reached, a specialised family law lawyer can ably assist you in court proceedings.
Conclusion
The settlement of prenuptial agreements with a regular setoff clause upon divorce of entrepreneurs is a complex process involving both business and personal interests. It is crucial to handle this process carefully to ensure that your rights and assets are protected as much as possible. At SPEE advocaten & mediation, we understand the challenges entrepreneurs face during divorce and are ready to guide you through this process. Please feel free to contact our specialised family law lawyer and mediator Mrs Angelique van den Eshoff or Mrs Marion van Acker, for expert advice and tailored support so that you can achieve the best possible outcome. We are also happy to help you draw up prenuptial or postnuptial agreements in such a way that they are watertight in the event of divorce or death. In fact, a specialised lawyer can also draw up prenuptial or postnuptial agreements for you; it is not merely a task for notaries.