United States: How To Protect Your Family-Owned Business From Your Child's Spouse

For most people, a child's wedding is one of those great life moments that is filled with months of planning and excitement. However, for people who own a family-owned business, the old myth that 50 percent of marriages end in divorce might cause some anxiety and a visit to an attorney. In Missouri, as with most other states, there is a presumption under the law that marriage is an economic partnership. This economic partnership gives a child's spouse certain economic rights upon dissolution of the marriage and at a child's death.

Generally, the economic rights of a spouse are controlled by state law and vary from state to state. Owners of family-owned businesses are diligent in protecting their businesses and wealth from creditors by purchasing insurance and operating through entities such as corporations, limited liability companies and limited liability partnerships; however, they sometimes fail to protect their business from a different type of potential "creditor" -- a child's spouse.

Generally, for divorce purposes, all property owned by married couples is classified in two categories: (1) marital property and (2) non-marital property (also called separate property). In most states, in a divorce, the separate property of a spouse is not subject to division by a court and remains the separate property of such spouse. Unlike separate property, courts have broad discretion in dividing the marital property between spouses.

So the distinction between the two categories of property plays an important role in protecting property from a child's spouse upon divorce. In Missouri, separate property includes: (i) property owned prior to the marriage, (ii) property acquired subsequent to the marriage by gift or inheritance, (iii) property that by agreement of spouses is separate property (a premarital agreement), and (iv) the increase in value of separate property except to the extent, if any, that marital assets, including labor, have contributed to such increase. However, Missouri takes a distinctly minority approach among the states in characterizing income from separate property as marital property. Marital property is all property of a married person that is not classified as separate property.

In addition to a property settlement at divorce, a court may award maintenance (also known as alimony) to a child's spouse. The purpose of maintenance is to provide a spouse with sufficient income for his/her reasonable needs. A court considers many factors in awarding maintenance, including the separate property of each spouse. So, although a court cannot award a spouse's separate property to the other spouse, the income from separate property may be needed to pay an award of maintenance.
In the context of the death of a married child, the distinction between marital property and separate property goes away. Rather, any property "owned" by a married child is subject to certain marital rights of the surviving spouse.

In Missouri, the principal marital right is the right to a fractional share of the deceased spouse's "estate." Generally, the surviving spouse is entitled to one-half of the estate if there are no children of the marriage; or one-third of the estate if there are children of the marriage. However, the "estate" is not necessarily the totality of a deceased child's assets. As an example, property owned by a child's revocable trust prior to marriage would not be considered as part of such child's "estate" against which a spouse would have a fractional interest.

By contrast, property titled solely in a child's individual name, that does not pass by operation of law at death (by beneficiary designation or otherwise), would be considered as part of such child's "estate." To prevent a deceased spouse from impoverishing the surviving spouse by transferring assets to others, including a revocable trust, Missouri allows certain property to be pulled into the "estate" if the surviving spouse can show the transfer was made "in fraud of the surviving spouse's marital rights."

There are many ways to prevent a child's spouse from becoming a "creditor" of a family-owned business. Below are three common ways to protect the family-owned business:

Premarital Agreement. A premarital agreement is an agreement between a child and the child's future spouse. The premarital agreement should be entered into by the parties months before the wedding date. The parties to a premarital agreement can establish how property will be retained or divided and whether either party will make maintenance payments to the other party in the event the marriage is dissolved, and establish what rights a surviving spouse will have in the estate of the deceased spouse. If a child already owns an interest in the family-owned business and works for the business, a premarital agreement probably provides the most certainty in protecting the family-owned business from a child's spouse. An important part of a premarital agreement is full financial disclosure of a child's assets, income, and liabilities to the child's future spouse, including financial details about the family-owned business.

Child's Estate Plan. A child should create a revocable trust and transfer all property owned by the child, including any interest in the family-owned business, to the revocable trust prior to contemplation of marriage. The assets (excluding income earned) of the revocable trust should remain the separate property of the child for divorce purposes and should be excluded from the child's "estate" for purposes of determining the surviving spouse's rights in the assets at the child's death. The child should be careful not to withdraw the trust-owned assets and commingle them with other assets owned by the child or the child's spouse, including adding spouse as an owner of such assets. Note that a transfer of property of a child to the child's revocable trust after the marriage or close in time to marriage may be challenged by the spouse after the child's death as a transfer intended to deprive the spouse of marital rights.

Parent's Estate Plan. Any interest in the family-owned business that a parent wants to give a child should be given to such child in a trust that will remain in existence for the lifetime of the child. As long as the trust is drafted carefully, the property held in trust will not be subject to claims of a spouse in the context of a divorce or at death because the child does not "own" the property. Although, the assets of the trust are protected, the income distributed by the trust to a child is likely to be considered marital property in a divorce proceeding and subject to division by a court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.