The man had inherited his father’s business when he was in his 30s and spent the next few years growing it into a $6 million company. When he later got engaged, he was concerned about keeping this increasingly valuable asset in the event of a divorce. So before tying the knot, the man asked his fiancée to sign a prenuptial agreement that kept all of his pre-existing assets–including his business and the related real estate–entirely separate from his wife. But now the man was in his 40s with two children, including one from his wife’s previous marriage, so he had a more pressing concern: Providing for his family in the event of his death. Because the business represented the vast majority of his wealth, the prenup severely limited the assets that his wife would automatically receive upon his death.
The Wall Street Journal article “Creating an Estate Plan Around a Prenup” chronicles how an estate planning attorney worked with a client to ensure the needs of the client were addressed. After thoroughly understanding the estate planning goals of the client, the attorney created a plan that provided for the client’s family after he passed away. This plan preserved the terms of the prenuptial agreement that kept his wife from taking his assets and business in a divorce. The adviser suggested using family limited partnerships. This type of entity gave the client a way to provide for his wife with income from the business—without giving her control of the enterprise.
Under the family limited partnership structure, the client had 99% limited partner ownership in the two companies. When he died, his will would set out some of the limited partner interest to his wife. These shares would be given to a testamentary trust with the wife as trustee and beneficiary. As a result, the wife would receive income from the business through the trust; however, she would not get a controlling stake in the company.
The estate planning attorney created the partnerships and transferred ownership of the business assets into them. The WSJ reported that the client and his wife have been very happy with the results for more than 15 years now, with both a strong business and marriage.
Reference: Wall Street Journal (July 11, 2014) “Creating an Estate Plan Around a Prenup”
