27th November 2023
None of us go into a marriage anticipating a split – but an estimated 42% sadly end in divorce. Here’s how business owners can protect their hard-earned assets
In any break-up, the dividing of assets can be painful and stressful, and if you are a business owner that can add an additional layer of complication. A strong pre or postnuptial agreement is the most effective way to protect your business in the event of a divorce.
It may seem unromantic when planning a wedding or in the early stages of a marriage, but entrepreneurs should consider how they can protect their business in case life doesn’t work out as planned.
Why would a business owner need a pre-nuptial agreement?
Entrepreneurs work hard to establish a successful business. Not always, but often, they have put most of the blood sweat and tears into their venture before they come to marry. A future break-up could have huge implications not just for the business owner who is getting married, but also for any staff, business partners and co-owners.
It is for this reason that business partnership agreements or articles of association often include an obligation for joining members to enter into a pre or post nuptial agreement – and these can even prescribe details about how shares can be transferred if the worst comes to the worst.
What is a pre or post-nuptial agreement for?
Pre-nuptial agreements are contracts that allow individuals to establish the financial terms of their marriage, ensuring that assets before the marriage remain protected in case of a divorce. Post-nuptial agreements are essentially the same, except that they are made during a marriage rather than before it.
These agreements will be especially relevant for business owners – whether one partner owns a business, each partner owns a different business, or a business is owned together. Often most helpfully, a nuptial agreement can ring-fence a business and its assets so these are separated from matrimonial assets such property, jewellery and savings, protecting them in the event of divorce.
Pre and post nuptial agreements have to be drafted in accordance with strict criteria and the absence of doing this can invalidate them. They should be carefully drafted by a professional, following legal advice, as each agreement is as unique as each couple and business involved. The document should state clearly what belongs to whom, and how your personal and business assets are to be divided.
Are pre and post nuptial agreements legally binding?
Pre-nuptial and post-nuptial agreements are not legally binding in England and Wales, but in recent years they have grown greatly in significance and are treated much more seriously by the courts. Many believe it is only a matter of time before they are enshrined in law, as they are in many parts of Europe, the United States and elsewhere.
Currently, case law is evolving and a landmark case, Radmacher v Granatino, set a precedent by declaring that pre and post-nuptial agreements should be given "decisive weight" in divorce proceedings. It’s clear that these agreements are worth the time and financial investment in providing valuable protection for your business.
The UK Supreme Court and the Law Commission have set some qualifying criteria for pre-nup and post-nup agreements, among them a requirement that both parties must have received legal advice.
Others include: that the agreement must be freely entered into; both parties must understand its implications; there should have been disclosure about financial circumstances; and, in the case of a pre-nup, the agreement must have been made at least 28 days before the wedding.
Apart from business, what else can I protect with a pre-nup?
We are often seeing couples marrying at an older age, meaning that they are likely to have progressed further in their careers and amassed property, pension or other personal assets - or have retired.
These are all important factors when considering whether or not you would like to have these assets ring-fenced following a marriage.
As well as a business, the types of pre-acquired assets that you may consider ring-fencing in a pre-nuptial agreement are:
When you are planning a wedding, at whatever stage in your life, it is never nice to think that it might not end happily ever after, but what a pre or post-nuptial agreement does allow is for couples to have a choice over their future and give them greater certainty and control over a financial settlement if the worst should happen.
The Thrings Family team specialise in advising couples and individuals on relationship planning, including pre-nuptial and post-nuptial agreements. Find out more here.