Getting married? Protect your family business with a pre-nup

Posted on By Joanna Pegum
couple walking

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 [2010] 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:

  1. Both parties obtained independent legal advice prior to entering into the agreement.
  2. 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.
  3. Prior to entering into the agreement both parties provided the other with full financial disclosure.
  4. Both parties understood the implications of the pre-nuptial agreement.
  5. 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.

Seek advice

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.

Related articles

Amanda Simmonds TEP, Senior Associate, Private Client, Lupton Fawcett, Leeds.

Safeguard your business with a Lasting Power of Attorney

Posted on By Joanna Pegum
man looks thoughtful

Most people understand that a Lasting Power of Attorney (LPA) allows you to nominate someone to take decisions on your behalf, if you become incapacitated in some way.

However, it’s much less well known that an LPA can also be put in place for a business, where the sudden illness of the owner could have serious ramifications for the business and its workforce. This is especially topical given the current health crisis.

A sensible precaution

If you have a business of your own, it makes sense to have an LPA in place. Everyone your business comes into contact with, from suppliers and creditors to clients and employees, could benefit from having the trusted individual you have nominated running the business in your stead, should you become incapacitated and unable to work.

So why are LPAs for businesses so uncommon? Unfortunately, many business owners are simply unaware this is an option, even though some people fear even a temporary period of mental incapacity may lead to them permanently losing control of their business interests.

Others might be content that in circumstances where capacity is lost, the Court of Protection will appoint a deputy. It’s worth bearing in mind though, that appointing a deputy can take several months, which is plenty of time for the decision-making processes and daily operations of a business to fall apart.

Conversely, putting a business LPA in place ensures that a person you know and trust will take the reins immediately, and can begin to deal with the usual running of the business.

Make the arrangements now

A business LPA can be straightforward to organise. A Form LPF1 must be completed and signed by a witness, a ‘certificate provider’ and the chosen attorney. The form is then registered with the Office of the Public Guardian (OPG). At time of writing, the fee for registering a business LPA is £82.

It makes sense to arrange a personal LPA alongside a business LPA, but note that your personal one should stipulate that it does not cover your business affairs.

Similarly, your business LPA must state that your nominated attorney has power only over your business affairs.

The choice of attorney requires a lot of careful consideration. It is therefore important to consult an experienced team of legal advisors, who will offer support in making this decision and take all the relevant factors into consideration.

Sarah Nash TEP is a Partner at Alexander & Co Solicitors

I don’t believe it! Common excuses for not making a will

Posted on By admin

I have been working as a solicitor for more than 30 years. With every day that passes I begin to feel (and possibly look) like Victor Meldrew from the classic TV programme, One Foot in the Grave. I find myself frequently saying ‘I don’t believe it!’.

Sadly, I deal with inheritance disputes, and even more sadly, I see families falling out about the estate of a family member who has died. What is all the more tragic is that many of these disputes would never arise if people made a formal will to set out their wishes.

From love to war

I recently represented the long-term partner of a very successful businessman. They had been together for over 20 years. He knew that he was dying of an incurable disease. He had advice from a solicitor that he should make a will, but he refused to sign one. When he died without a will, none of his estate went to his long-term partner, but instead went to the children of his former wife.

To say that disagreement erupted between family members was an understatement. Court proceedings had to be commenced for reasonable financial provision under the Inheritance Act 1975. The close family who one year were sharing Christmas dinner around a dining room table found themselves the next year arguing around a lawyer’s table.

All of this could have been avoided if he had made a carefully considered will – making provision for the partner he loved.

Protecting your business

Another successful businessman was in partnership with his brother. They both received professional advice that they should make wills and that they should be updated from time to time. Although they both made a will to ensure the continuation of their business, they failed to update their wills when their business was changed from a limited company to a partnership. This meant that when one of the brothers died unexpectedly, the provisions in the will about company shares became invalid.

Expect the unexpected

A wealthy man sadly had a history of failed relationships, with a variety of children by different partners. He found it ‘too difficult’ to work out the provision that he wanted to make for each of his children and former partners. He thought he would live for many years and spend most of their inheritance before he died and he said that they could ‘fight about what was left’.

Unexpected things happen. This man died, unexpectedly, shortly after he retired, leaving a large estate for his children to do exactly as he had predicted – namely fight about what was left.

Everybody dies, so make a will!

The story that I get from so many clients is that their loved one ‘never thought that they would die’. As I said at the outset of this article – I just don’t believe it!

When I give advice that people should make a will I do this not from self-interest, but because I genuinely hate to see families fall out at such a sad time.

If things do go wrong then a good lawyer can tell you about the pragmatic steps that can be taken to resolve a difficult situation without causing needless and undue family disharmony. Many advisors will not charge for initial telephone, or personal, advice – advice that can be priceless.

Talk to a TEP – find an expert near you

Stephen Lawson TEP is a Partner and Head of Litigation at FDR Law LLP, Frodsham, UK