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.

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

Do I need a prenuptial or postnuptial agreement?

Posted on By Louise Polcaro
prenuptial agreement,divorce,marriage

Family Court judges have wide discretion as to the division of assets on divorce. At a time when families and their assets are becoming increasingly complex and often spread across different countries, you can protect your own or family wealth by entering into a prenuptial or postnuptial agreement with your spouse, or spouse to be, to set out how assets would be split if you were to divorce.

Prenuptial agreements

Prenuptial agreements are contracts entered into before marriage. Although still perceived as an American phenomenon, they have long been normal practice in many countries across the world. It was only in 2010, however, that they became legally enforceable in the UK, after the landmark case of Radmacher v Granatino. Since then, they have steadily gained popularity as an effective way of future-proofing a relationship.

Whilst, unlike commercial contracts, prenuptial agreements are not binding, they are considered to have ‘magnetic importance’ and will only be disregarded by the Family Court if they are obviously unfair.

Postnuptial agreements

Postnuptial agreements are the same in principle as prenuptial agreements, but are made at any point during a marriage.

If a couple includes in their prenuptial agreement a clause to review the contract every few years, then it will become a post-nuptial agreement if and when it is amended.

Postnuptial agreements currently carry more legal weight than prenuptial agreements, but the best way to ensure that a judge respects your wishes is by having both types of contract.

Why make a nuptial agreement?

By determining who gets what in advance, nuptial agreements allow couples to avoid protracted and acrimonious litigation in the event of divorce. Some couples choose to cover just their main business and trust interests or inheritance, and others address the relationship more comprehensively.

Some uses of nuptial agreements are:

  • in first marriages to demarcate what is matrimonial property and what is non-matrimonial (such as inherited wealth).
  • in subsequent partnerships to ensure you provide for any children from previous relationships, especially where there are more significant sums involved.
  • within family businesses, making nuptial agreements a prerequisite is a prudent addition to a family constitution in order to prevent any disruption to the business.

Do it properly

However they are used, nuptial agreements must be entered into with proper legal advice and full disclosure of assets in order to best ensure, as far as possible, that they are upheld by the Family Court. You should not enter into a nuptial agreement unless you intend to be bound by its terms.

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Hannah Southon TEP, Consultant, Litigation; and Xanthy Papageorgiou, Senior Associate; both with Sinclair Gibson