Asset protection is a crucial part of wealth building. There are many different aspects of asset protection and they often involve complex trust structures. Yet most people ignore the number one cause of financial loss, even though it is easy to protect them.
Both of these are important and every wise business person structures their business with the aim of minimizing these two risks, but there is a bigger risk than those two put together.
The risk of losing big time financially in a divorce can be minimized by having a sound prenuptial agreement yet many otherwise canny business owners fail to take this sensible step and end up losing far more money that they needed to.
Much of the money lost in a divorce isn’t just going to your ex-spouse; it is going into the pockets of lawyers. There is no financial incentive for lawyers on either side to come to a quick settlement. They are getting paid while the parties are fighting.
A lot of this financial and emotional loss could be avoided if couples took an example from business.
A golden rule in business is to never enter into a joint venture unless you have a formally documented and signed exit strategy. There are two reasons for this.
Firstly, you are much more likely to agree on a reasonable exit strategy while you are all friends and positive about the joint venture.
The second reason is that anyone who won’t negotiate a sensible exit strategy before the joint venture starts is likely to be a nightmare as a business partner and so you can take the warning and not enter into a joint venture with that particular party.
Marriage is also a joint venture but love often distracts us from seeing this reality!
The statistics tell us that around 50% of American marriages end in divorce yet the number of marriages with prenups is estimated as between 5% and 10%. In other countries where the divorce rates are similar the rate of prenups is dramatically lower.
Why is the rate of prenuptial so low?
One common reason is blind optimism. A few years ago Harvard Law School conducted a study to see how couples about to enter marriage rated their own chance of divorce. This study showed that the average couple rates the chance of their marriage ending in divorce as 11.7% whereas the real chance is almost 5 times that.
Business joint ventures are started with optimism as well but they still have soundly documented exit strategies. There is no reason for a marriage to be any different.
Another reason that so few marriages have prenups is that they think that they don’t have anything to lose. This may be true at the time that they are entering marriage but at the time they are divorcing they may have a lot to fight over and no agreed ground rules.
Perhaps the two most common reasons people don’t have prenups are the two biggest enemies of investors and entrepreneurs, fear and ignorance. Some people simply never think of a prenup and others think about it a lot but are too afraid of how their betrothed might react if they were to raise the matter with them.
Please be clear that I am not offering legal advice here but I am suggesting that anyone who plans to become financially successful should also seek sound legal advice about the protection they could gain from a prenuptial agreement.