Can a Pre-Nuptial Agreement protect the Family Business on Divorce?

The resolution of finances on divorce

When couples get divorced, is it is often the resolution of finances that causes the most difficulties. 

Should an application have to be made to the Court for financial remedy, it is difficult to predict how assets are to be divided.  This is because in making its decision the Court must consider a range of factors under Section 25 of the Matrimonial Causes Act together with key principles which have derived from caselaw.  Amongst these factors and principles, each Judge has a wide range of discretion to make an Order which they perceive to be fair and reasonable on the basis of evidence before them.

In terms of dividing assets, the starting point is 50/50 which is then cross checked against a range of factors. In many cases, the parties’ needs, in terms of housing and income will take precedence over everything.  

In the context of business assets , the parties’ needs might lead the Court to make an Order for the transfer of shares from one party to the other, or in extreme cases, an Order for Sale of the business.  From a succession planning perspective this could be a disastrous outcome, especially if it was intended that the business was to remain in the family to be inherited by the next generation.

It is against this background of uncertainty and potential lack of autonomy in respect of financial arrangements on divorce that pre-nuptial agreements can be of assistance.

What is a pre-nuptial agreement?

A pre-nuptial agreement is an agreement between a couple to an intended marriage or civil partnership that sets out what they intend to happen to their finances and property if the marriage or civil partnership were to end.

Are pre-nuptial agreements binding?

Pre-nuptial agreements are not strictly binding in England and Wales, as it is not possible to oust the jurisdiction of the Court, however since the Supreme Court’s decision in the case of Radmacher v Granatino [2010], such agreements are carrying more weight and are regarded by the court as a potentially decisive factor.

The reason why pre-nuptial agreements are considered only potentially decisive is because ultimately the agreement must be considered fair.

How can you ensure that the agreement has the best chance of being upheld as fair?

To improve the chances of a Court considering the agreement to be fair, the following rules should be followed: 

  1. Both parties must have received full disclosure of the other’s financial position.
  2. Both parties must have received independent legal advice from separate solicitors on the agreement and its effects.
  3. The agreement must not prejudice the reasonable requirements of any children and should provide for each of the party’s basic reasonable financial needs.
  4. The agreement should be made at least 28 days before the wedding or civil partnership to show that neither party was pressured to enter into the agreement and had adequate time to reflect on its terms.
  5. The agreement should state that the parties intend to create legal relations and should be executed as a deed.

Provided that a pre-nuptial agreement is prepared in accordance with above guidelines as to legal advice, full financial disclosure and represents a fair arrangement for both parties, it can be an effective way of succession planning for family businesses.

For more information or advice please contact Zoe Porter from our Family Team. 

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