Protecting Your Business With A Prenuptial Agreement
Feb 17, 2023
Why Create A Prenuptial Agreement
Generally speaking, a prenuptial agreement is a legal document signed before marriage that sets out how assets will be divided in the event of divorce or separation. While rare, prenuptial agreements are becoming more common in Japan as people seek to protect their assets and financial independence.
It is obvious that a prenuptial agreement does not seem romantic. But a messy divorce is even less so. As they say, love is blind, and it can be difficult to assess the true risks of a relationship during the honeymoon phase. A prenuptial agreement can act as a safeguard so that if anything goes awry in the relationship, you and your partner can rest assured that the difficult parts have already been ironed out.
Before starting a new business partnership, conscientious business owners will always insist on a written agreement. Contracts can be seen as a tool to mitigate risk when dealing with partners. We use them to protect ourselves as best we can when doing business. Contracts can also act as bargaining chips when the partnership enters a gray zone. Business owners will use contracts even for very short partnerships, or for very low stakes. So why is it that we don’t demonstrate the same kind of vigilance towards our potential marriage partners?
Marriage, after all, is often a long and resource-intensive partnership with a high risk of failure. Many marriages will end in divorce. Did you know that in 2020, the average age of marriage in Japan was 31 years old for women and 29.4 years old for men while the average lifespan was about 88 years old for women and 82 years old for men? Considering that marriages in several countries last between 10 and 15 years, the likelihood of divorce is quite high for most people.
If you are a business owner or if you plan to start a business in the future, having a prenuptial agreement can be especially important as a divorce can have a significant impact on your business and assets. Consider what might happen if you, as a shareholder in a company, are forced to transfer your shares to your spouse or to sell those shares to a third party in order to compensate your spouse fairly. This could have a big negative impact on the management of your company. It could be especially difficult if you have partners whose own standing in the company are affected by your divorce.
How To Create A Prenuptial Agreement
So, if you are interested in getting a prenuptial agreement, how should you do it?
The normal division of property under Japanese law in the case of a divorce is 50/50. Parties to a prenuptial agreement can agree on a different division of property by entering into an agreement. It is essential that this agreement be concluded BEFORE the marriage (article 755 of the Japanese Civil Code). This agreement must also be registered if the agreement is to be asserted against third parties (article 756 of the Civil Code).
As a side note, article 26 of the Act on General Rules for Application of Laws (Act No. 78 of 2006) also allows parties to agree that their marital property system will be governed by the law of another country if certain conditions, such as registering the agreement in Japan, are met. If the criteria are met, the agreement could even be binding for third parties.
Japanese law does not provide much more guidance regarding the content of prenuptial agreements. It is important to be cautious when drafting the agreement, because Japanese courts will not uphold agreements which are unfair or go against public order. There is also little jurisprudence on this matter so it is difficult to predict how the courts while judge in different scenarios. Careful drafting is critical to avoid interference by the courts. This is why we advise our clients to speak to a legal professional in order to build an agreement which will stand the test of the courts. We can provide with a number of standard terms which are crafted to protect you and your partner’s interests.
Ultimately, our firm’s objective is to provide you with a smooth process for formulating a prenuptial agreement which meets you and your partner’s needs. If you do end up getting a divorce, our aim is for this process to be as smooth as possible as well, thanks to a soundly constructed prenup. Prenuptial agreements can be very useful, even if they are not registered, and can be used as bargaining chips or as a foundation for a discussion around divorce.