Joshua S. Miller

Summer is upon us and that means wedding planning for many couples. This is a happy time for the couple, but for a family with significant business holdings, it may bring up difficult conversations regarding how best to protect the family’s wealth. In this article, we will explore potential strategies and tools available to the business owner and family to protect their assets before marriage and in the event of a divorce. Not every tactic will be right for every family, but each deserves careful consideration and a discussion with your advisor about how to use them effectively to protect your family’s wealth. For the purposes of this article, we will focus on asset protection and marriage and not risk from other potential creditors.

A conversation regarding the family business, marriage and planning should start with this question: Is there a succession plan in place? The answer to that question will help guide the business owner in selecting strategies that will work best to accomplish goals regarding the future of the business. In addition, having a long-term vision for the business provides a basis for understanding what needs to be protected, even if that vision includes the possibility of a sale to a third party.

Each family business is uniquely its own ecosystem, but all family businesses have one dominant characteristic in common with each other – the overlap of family issues and business issues. This overlap involves unclear boundaries between the family and the business, deeply rooted and shared traditions (both business and family), and wealth transfer, with a vision for both individuals and the company. The owner of a successful family business faces significant challenges when the time comes to either transition the business to other members of the family or sell to a third party. Often, the family business is the primary asset and makes up the majority of the family’s wealth. In other cases, there are assets outside of the business; therefore, any plan needs to take into account the family’s total wealth.

Once the business owner decided where to go, it will be easier to determine the best route to use to get there. Below are some strategies available to a business owner and the family to consider when determining how to protect the family business in the context of marriage and divorce.

Prenuptial Agreements

A prenuptial agreement is an agreement made between prospective spouses and entered into prior to a marriage that sets forth a structure for the division of assets and financial support upon the subsequent divorce and/or death of the parties. Like many things in life, timing is important. The conversation between parent and child about what a prenuptial agreement is and why it is important for the family should happen as early as possible. Hopefully, this is well before the child enters into a serious relationship. The goal is for any future spouse to understand early on that this is part of entering into the family and that it will not be a surprise a month before the wedding.

With respect to the business owner, the prenuptial agreement can direct that business assets stay within the family line and that other assets be used to satisfy any requirements under the agreement. This is an agreement between two parties, so they have flexibility in deciding the terms of the agreement. It is essential that the agreement is fair when entered into and that both parties are represented by independent counsel. A properly executed prenuptial agreement can provide the business owner with the comfort that if the marriage does not work out, there is an agreement in place to protect the business and ensure that it stays within the family.

Limited Liability Entities

Family limited partnerships (FLPs) and limited liability companies (LLCs) are entities created by a group of individuals, generally for the efficient management of the underlying assets. These entities can also provide asset protection, particularly if the business owner is not the sole member, partner or manager of the entity. The chief attraction of FLPs and LLCs is that creditors generally cannot satisfy a claim with assets in the entity or force a liquidation. The creditor must obtain a “charging order” that attaches distributions that are made from the partnership and generally only has a right to the debtor’s distributions up to the amount of the debt. The manager or general partner of the entity controls the distributions.

Many businesses are already structured as an LLP or LLC. The decision regarding how the business is structured may depend on numerous other factors including, but not limited to, income taxes, estate taxes, relationship of owners, characteristics of the assets and line of business. Holding a business within a corporate entity may not offer complete protection in the case of a divorce of a partner or shareholder.

Often, business assets are insulated with two layers if an FLP or an LLC interest is transferred to a trust by sale or gift. The first layer is the protection that the LLC provides with respect to the underlying assets. The trust does not own the asset; instead, it owns an interest in the LLC and the trust is not the manager of the LLC. Thus, the trust cannot force a distribution from the LLC of the asset, nor can a creditor. The second layer is provided by the trust, which gives the trustee control over distributions and prevents the beneficiaries and their creditors from making claims on the assets. When considering a trust as an asset protection vehicle, be sure to discuss the provisions of the trust document with your legal advisor.

Irrevocable Trust

Trusts are an excellent way to keep money in the family, especially as children grow up and embark on lives – and enter relationships – of their own. Utilizing an irrevocable trust to hold and administer interests in a family business may provide protection in the case of a divorce. Simply put, the trust is created for the benefit of another, administered for the purpose and terms determined by the trust creator and carried out in the discretion of the trustee.

While it’s human nature for people to think of divorce as a low risk potential event in their family, it does happen. An irrevocable trust can be a good choice for business assets vulnerable to being lost in a divorce, certainly if there’s family sentiment surrounding the assets. Any assets held in the trust can be protected from the claims of creditors as long as they remain in the trust and the beneficiary has no right to withdraw them. Assets distributed to beneficiaries from the trust are subject to creditors’ claims. Proper administration of a discretionary trust is critical in achieving its objectives.

Asset Protection Trusts

A special type of trust known as a “self-settled asset protection trust” is another option for protection. An asset protection trust is a trust created by an individual in a jurisdiction that allows that a trust over which a person retains a discretionary beneficial interest is exempt from the claims of the trust creator’s creditors. Delaware was one of the first states to enact self-settled asset protection trust legislation. Several states have since done the same.

Assets, including a business, held in the asset protection trust can be protected from the claims of creditors as long as they remain in the trust and the donor/beneficiary has no right to withdraw them. As mentioned above, assets distributed to beneficiaries are subject to creditors’ claims. Trusts should be established in jurisdictions that have enacted the appropriate legislation and should be properly administered.


Asset protection follows the continuum of life’s events, reflecting the changes that individuals, families, careers, businesses and wealth undergo. Sometimes wealth “events” occur suddenly – such as an earlier-than-expected inheritance – and other times they accumulate over time – as in the case of a business that grows and prospers, resulting in significant wealth and potentially significant exposure to risk.

For the business owner, a simple way of thinking about asset protection strategies is from lower risk and simpler tactics to higher risk and more complex and sophisticated tactics. In the context of protecting your business from damage that a divorce in the family could potentially cause, speak with your advisor about which strategy is most appropriate and effective to protect your family’s business and wealth.

Joshua S. Miller is a managing director and senior wealth strategist in the Boston office of Atlantic Trust Private Wealth Management. This article first appeared in the Summer 2016 issue of Massachusetts Family Business, the magazine of the Family Business Association of Massachusetts.

About the Author

Allen Esrock is the Founder of NxtGen Nexus. Prior to that he started Jitter Fingers, the first safe, social networking website for tween girls and their bffs. They were Jitter Finger clubs in 12+ countries and 250+ cities in the US.

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