Benefits of pre-nuptial agreements for business owners

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While it may not seem particularly romantic to consider entering into a pre-nuptial agreement before marriage, currently 18% of marriages result in divorce before reaching their 10th anniversary. If you own or have a share in a business, it is sensible to consider the implications of what will happen to that business should you divorce in the future.

A pre-nuptial agreement sets out who owns the assets at the outset and within a marriage and what will happen to them should the relationship break down and the parties divorce.

It is important to note that while pre-nuptial agreements are not legally binding in England and Wales, they now have increased weight within the jurisdiction and the Court will generally endorse their terms provided they are completed correctly. As a result, they have become increasingly popular for business owners as a way to protect their assets.

In short, a pre-nuptial agreement allows you to:

  • safeguard inherited property, whereby if you have inherited substantial property, or this is a possibility in the future, then a pre-nuptial agreement can help you safeguard that property should the worst happen within your marriage;
  • keep control of any business that you owned at the outset of the marriage should you divorce in the future;
  • help with succession planning for the business;
  • safeguard assets which are inherited or gifted during the marriage; and
  • ensure certain assets are reserved for children from a previous marriage to protect their inheritance rights, together with a will.

In order to successfully create a pre-nuptial agreement, certain criteria apply as follows:

  • It should have been created at least 21 days before the wedding ceremony.
  • There needs to have been financial disclosure between the parties so both parties are aware of the extent of the assets, and any debts, involved.
  • The terms of the agreement need to be reasonable in its provision for both parties should the marriage break down.
  • Both parties need to have received their own independent legal advice in anticipation of entering into the agreement.

These criteria ensure the agreement is entered into freely, and with each party having knowledge of the assets available to them and therefore the implications of the agreement.
If the criteria are not met, then there is a risk that the Court may disregard the contents of the pre-nuptial agreement and deal with the financial settlement in the usual manner.

What are the consequences of not entering into a pre-nuptial agreement should you later divorce?

In England and Wales the Court will first ensure that the financial needs of the parties are met from any matrimonial assets they hold, before then looking at sharing the remaining matrimonial assets if the parties needs can be met. It can also consider other assets available to the parties including non-matrimonial property such as inherited wealth or assets you have brought into the marriage at the outset.

Non-matrimonial property will not be shared but without a pre-nuptial agreement being in place defining what assets are matrimonial or non-matrimonial at the outset then businesses and other assets may be at risk of being defined as matrimonial.

The financial costs to the parties will also often increase exponentially during the ensuing litigation if the Court is required to determine the status of each asset, something which could have already been defined within a properly drafted pre-nuptial agreement.

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