How to Help Protect Your Business with a Prenuptial Agreement

It is becoming increasingly common for couples, when contemplating marriage, to enter into a prenup (or in the case of a civil partnership a pre-registration agreement). Whilst prenups are not legally binding in England and Wales, the Court on any later divorce proceedings are more likely to consider the agreement fair, and therefore follow its terms, if:

• both parties have had independent legal advice
• the prenup has been completed a reasonable time before the wedding
• there has been full financial disclosure of each party’s assets to the other
• the terms of the agreement are substantially fair taking into account the circumstances
• legal contractual requirements are followed (such as execution as a deed)
• the prenup is not too old and/or has been reviewed during the course of the marriage (every three to five years perhaps)

People can have many reasons for wanting to enter into a prenup including:

• excluding inherited assets
• ring fencing assets brought into a marriage
• safeguarding children’s inheritance (common with second/subsequent marriages)
• protecting business interests

Without a prenup, on a divorce a business could be put at risk.

There will usually be a joint valuation of any business and that value is then taken into account when deciding how all of the assets in the pot should be divided between the couple. Whilst the court will look carefully at the figures taking into account such issues as taxation and liquidity, the business can greatly increase the complexity of the case and can create divided opinion on how it should be dealt with. This in turn can lead to an escalation of costs. Forward planning by way of a prenup can help reduce the uncertainty upon divorce if the principles of how the business should be dealt with have been agreed at the outset.

The content of the prenup could cover such matters as:

• Establishing the value of the business as at the date of marriage – this is important if it is agreed that only the value of the business that has accrued during the course of the marriage be taken into account on any divorce. The value of the business can be written into the prenup, although it is important to also keep hardcopy records evidencing the value as at the time of the marriage.

• Detailing how the business will be valued on a divorce-what will be taken into account? Would it exclude, for example, assets that may have been subsequently acquired by the business by way of inheritance? (Farming cases/family businesses)

• How any depreciation/appreciation in the business during the course of the marriage should be split-this may well depend upon the intended role the spouse will play in the business and this role can be defined, and allowances made for potential changes in roles

• Details as to how income from/investment in the business should be handled

• Succession planning

All people with a business interest entering into a marriage would be advised to consider a prenup. Farming families should also consider a prenup as an integral part of their wealth protection planning.

Ready to take the next step? Talk to us in confidence and find out where you stand. Our team of divorce and family law specialists – in London, Milton Keynes, Bicester and Watford – can advise and guide you from the moment we start working with you. Get in touch – we’re here to help.

This article is intended for the use of our clients and other interested parties. The information contained in it reflects the author’s view and is believed to be correct at the date of publication. However, it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional legal advice.