You’re getting married! Congratulations! This is an exciting time for you and your partner. In the whirlwind of excitement, practical considerations such as a pre-nup are often far from your mind. But if you own all or part of a family business, or you expect to inherit shares in a family business, then it is important to plan for all eventualities – one of which is the possibility (however unlikely ) that your marriage or civil partnership might not last.
What happens to business assets on divorce?
The starting point for the division of assets on divorce or dissolution is an equal division, and this might include a share of the business, which could cause issues for its survival.
It is subject to the discretion of the court as to whether there should be a departure from equality. Under the Matrimonial Causes Act 1973 the court will consider a range of factors when exercising its discretion as to how assets should be divided including: each party’s financial needs and resources, length of marriage, age of the parties and standard of living.
In cases involving family businesses, there is no certainty that the business will be ‘ring-fenced’ from the division of assets. The court will consider whether the business is matrimonial property and therefore whether it forms part of the matrimonial pot.
Is a pre-nuptial agreement binding?
While a pre-nuptial agreement is not automatically legally binding in England and Wales, it will be one of the factors taken into account in the court’s discretionary approach. The decision in the case of Radmacher v Granatino  UKSC 42 found that more weight can be attached to a pre-nuptial agreement provided it is freely entered into by each party, with a full appreciation of its implications.
Therefore it is likely that the court will uphold a pre-nuptial agreement if the following elements have been met:
- Both parties obtained independent legal advice prior to entering into the agreement.
- Both parties entered into the agreement freely without any pressure or undue influence and the agreement was executed at least 28 days before the marriage/ civil partnership.
- Prior to entering into the agreement both parties provided the other with full financial disclosure.
- Both parties understood the implications of the pre-nuptial agreement.
- The agreement was validly executed as a deed.
When considering whether a pre-nuptial agreement is fair, the court will also consider whether there have been any unforeseen changes in the parties’ circumstances that may render the pre-nuptial agreement unfair; or whether the agreement would prejudice the needs of any children of the family. It is unlikely that the court will uphold a pre-nuptial agreement that is inherently unfair to either party or any children.
Provided that the court is satisfied that a pre-nuptial agreement follows the above criteria, it can provide protection for individuals with family businesses by ensuring the business interest remains within the family. It will provide clarity for each party at the outset of the marriage or civil partnership about which assets are intended to form part of the matrimonial finances, and allow parties to plan what will happen in the event of divorce or dissolution. It may also help to alleviate the possibility of contested financial proceedings upon the breakdown of a marriage or civil partnership, which can be a stressful and expensive process.
Everyone’s situation is different. Before embarking on any course of action, you should speak to a qualified advisor with expertise in issues relating to family businesses.