Protecting the family business

Father and daughter baking loaves of bread in an industrial kitchen

Pre and Post Nuptial Agreements

Unfortunately, one in two marriages fail. There are consequences for a family business or for a wealthy individual whose wealth has been built up pre marriage or through inheritance. 

On divorce/separation, the default position of sharing matrimonial property is a 50/50 split. If you can establish that a particular asset has been gifted or inherited, it will not be included for sharing. However, if you cannot prove that, it will then be shared. You might be able to come up with an argument why it should not be shared 50/50. However, it is for you to prove, not for your spouse to disprove. Your argument might be successful – it might not – it will however cost you – the legal costs of putting forward the argument could be significant. 

In relation to shares in a family business, if they come into existence during the marriage by restructuring, they may have to be shared with the other spouse. 

Separation or divorce can have significant financial consequences, not only for the individual in the family business but the family business itself. Shares in the family business cannot be split or shared. Funding a large capital payment through the family business is often the only option. This can impact on the family business. 

Protecting the family business and acquired wealth from the consequences of divorce can be achieved by putting in place a Pre-Nuptial Agreement prior to marriage or a Post-Nuptial Agreement after marriage. A Pre or Post Nuptial Agreement can set out financial provision on separation or ring-fence/protect pre marriage or post marriage assets.

Are Pre and Post Nuptial Agreement binding?

In short, yes. In Scotland, if the agreement is properly set out and dealt with fairly then Scottish courts are comfortable with couples reaching an agreement and enforcing that agreement. 

In Scotland, financial agreements, if not fair and reasonable, can be challenged up until divorce. Pre and Post Nuptial Agreements fall into that category. 

Important things to consider

  • The agreement, if pre-nuptial, should be signed not later than a few weeks prior to the wedding. 
  • Both parties should receive independent legal advice
  • Full disclosure of finances is important to identify what the couple are bringing into the marriage. 
  • An agreement, unlike no agreement, provides certainty
  • Pre and Post Nuptial Agreements protect not only the individual owner of a family business, but the family business.

In England and Wales, Pre and Post Nuptial Agreements are not automatically binding. The position remains in England and Wales that it is the court, not the parties, who will dictate what happens to a couple’s assets following a divorce. 

However, the English courts will not simply tear up the Pre-Nuptial Agreement and start from scratch. Instead, Judges in England will tweak the agreement and bring it within the boundaries of what they consider to be fair. This might mean that a lump sum payment in terms of the Pre-Nuptial Agreement will be increased or another provision may be ordered in addition to that set out in the agreement. 

“Separation or divorce can have significant financial consequences, not only for the individual in the family business but the family business itself.”

Tom Quail, Partner, WJM

In a situation where you are advising a wealthy couple who have assets both north and north of the border, then it would be worthwhile, subject to expense, of having Pre-Nuptial Agreements prepared by both Scottish and English lawyers. 

The reasons for having Pre and Post Nuptial Agreements have evolved. They are no longer viewed as being to ring fence pre-marital assets from a new spouse.

Many family businesses now have a policy in place that the owners of the business should have Pre and Post Nuptial Agreements as part of the overall family business planning, particularly in relation to the restructuring of the business, enabling it to change in response to market demands. It is now very much viewed as part of family business governance in ensuring that the family business, as it evolves to adapt to market changes, is also able to continue as a family business and that ownership is passed to the next generation. 

More information

For further information on Pre and Post Nuptial Agreements, please contact WJM Partner Tom Quail on 0141 248 3434 or email tlq@wjm.co.uk 

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