Why Are Spouses Required To Sign Indemnity Agreements In Order To Obtain A Bond?

This is a question we hear all the time and is often a point of contention or confusion.  Spousal indemnity, except in certain rare circumstances, is an absolute requirement to obtain bonding.  It is fair to ask why.  However, it is important to ask, why do bonding companies require indemnity in the first place?  We answered that question in an earlier blog post you can read here.

So… As to spousal indemnity, here are the top reasons why spouses are required to sign:

1.        The ownership of a business is considered martial property if:

-          The stock of a corporation is titled to both spouses jointly. 

-          Or the LLC Operating Agreement stipulates that both spouses have an interest in the Company

-          The business was formed after your marriage.

-          If marital assets were invested in the business during the marriage

If the business is considered marital property, then both spouses have an interest in the company so both spouses are expected to sign personally to support and stand behind the bonding company for the promise the bonding company is making for the company and for the owners.

2.       “But my spouse doesn’t have anything to do with the business”.  We hear this all the time.  Our response is clear.  Please consider:

-          If the business is martial property, the spouse is very much involved in the business.  Actually, the spouse potentially own 50% of the business.

-          If your spouse derives benefit from the salary, bonuses, or profits of the business, to provide for mortgage payments, car payments, tuition for the children or retirement savings then then your spouse is involved in the business.

3.       Remember a bond is a promise being made by a bonding company that the business and the owners will do something (complete a job, pay their bills, abide by a permit).  The bonding company wants both spouses to stand together in partnership with them by backing the promise being made under the bond.  Bonding companies do not want a partner that derives financial benefit but is not willing to stand together with them.

4.       A spouse that derives benefit from a business but does not sign the indemnity agreement may encourage business decisions that are not in the best interests of the bonding company.  For example, a spouse may encourage you to pay bonuses before a bonded job is complete thereby depleting cash that would otherwise be available to complete the bonded job.

5.        Running a construction company is a high-risk proposition.  Contractors hire employees, borrow money, buy equipment, and sign contracts to complete risky jobs, hoping everything will turn out for the best.  Spouses should know what risks are being taken since the marital assets of both spouses are at risk.  Not including a spouse on the indemnity agreement may justify the operator of the business to take risks the spouse is not aware of.

6.       Do you have a Bank Line of Credit?  Did your Bank require your spouse to sign?  If so, the Bonding Company wants to be on equal standing with the Bank.

HOW CAN I GET BONDING WITHOUT MY SPOUSES SIGNATURE?

In certain circumstances spousal indemnity can be waived if there is a pre-nuptial agreement in place clearly establishing that the business in NOT marital property AND if the spouse agrees with the Bonding Company to not accept bonuses, dividends or disbursements from the company while bonded jobs are being completed. 

For a discussion on how to get bonded without giving ANY personal indemnity please refer back to the previous blog post.