The Dangers of Not Having Ante Nuptial Agreements

By Prof. Enrique Soriano

There is no doubt that entrepreneurial parents love their children and want their children to inherit. However, many parents who are also business owners are concerned about their children’s spouses. In many countries, a significant percentage of all marriages end in divorce or annulment, as in the case of the Philippines. And in Asia, divorce is growing at an alarming rate every year. Parents that spent a lifetime toiling and growing their businesses are in a serious dilemma.

What happens if a parent dies, bequeaths everything to the children, then commingle the funds with their spouses, and subsequently one of the in-laws files for separation or divorce? Or another offspring/shareholder predeceases the spouse? Or a shareholder that ends up physically incapacitated and can no longer function? Through equitable distribution, the in-laws may wind up with half of the parent’s estate.

In many instances, I would also be confronted with the usual questions and sometimes controversial ones from in-laws. For the most part, these questions are usually innocent as they are curious about their marital rights. However, for other in-laws, I can sense a deep-seated hostility towards the family. Below are just some of the examples that can make founders/owners cower in fear:

-If my spouse is part owner in their family business, do I own it too?

-As the wife, will I ever get some shares in my husband’s business? What about dividends?

-My spouse was given a mix of shares and assets, mostly real estate, by his parents. Am I entitled to at least half of it when he dies ahead of me?

-I am planning to file for an annulment. Will I still be entitled to my spouses’ assets?

-My partner and I have been living together for many years, making me my partner’s common-law husband, right? What are my rights under this arrangement?

-As the second wife, I would like to know my rights under the family code.

-Are my children from a previous marriage entitled to inherit from the estate of my new spouse?

-My husband always defers to me when it comes to decisions about his ownership of the business. Effectively, I make the decision for both of us.

-My spouse works hard but gets the same shares as his siblings. That is not fair. We should demand for more!

And if you have an irresponsible son or daughter-in-law manifesting any of the behaviors listed below, I strongly recommend proactively initiating plans by formulating legal agreements meant to protect your family members and the family enterprise.

-Entitled, pushy, and wants to be involved in every little decision

-A spendthrift and bad at managing money

-Has difficulty holding a real job.

-A gambler and/or has an addictive illness such as alcoholism or drug addiction.

-Emotionally and/or physically abusive to his or her children and/or grandchildren.

-Has children from a previous marriage.

-Unfaithful.

-Not close to and/or not on good terms with children from your adult child’s previous marriage.

As a business owner in your mid-60s and 70s, harboring “what can go wrong” thoughts can give you many sleepless nights. One part of the solution is encouraging your adult children to sign prenuptial agreements. Unfortunately, many children are very reluctant to confront their future spouse with such a document, so when a prenuptial agreement would not suffice or is no longer possible to arrange, we would usually recommend the next route: Establishing solid ownership agreements that can bind spouses (legally classified as future or mandatory heirs) to certain ownership restrictions. Similarly, the agreements can compel your child’s spouse to waive his/her rights under the family code, marital property law, or other national laws in retaining ownership interests in the family business.