Prenups: they're none of your business. Well, actually, they are...
Protect your business interests with a nuptial agreement
Businesses come in all shapes and sizes. Over the years the family courts have had to deal with an array, ranging from small family owned companies through to internationally recognised household brands, and everything in between. Determining what is to happen with those interests as part of a divorce can often take centre stage.
I have written on this topic in my other blog entitled ‘What happens to your business interests on divorce?’, which sets out the various approaches the court can take. Whilst there is no silver bullet when it comes to dealing with business interests, there is one step in particular that owners and directors should think carefully about, if it is their wish to minimise the undeniable concern and uncertainty that comes with what might happen to those interests within divorce proceedings, whether it be in relation to their own marriage or another owner’s marriage.
A nuptial agreement is often the best way to protect those interests. That agreement can either take the form of a prenuptial agreement (i.e. an agreement entered into prior to a marriage) or a postnuptial agreement (i.e. an agreement entered into during a marriage).
It is important to note that whilst nuptial agreements are still not legally binding in England & Wales, that is not a reason for ignoring them altogether. Following the ground-breaking decision in the case of Radmacher v Granatino in 2010, the Supreme Court adjudged that family courts should look to give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.
Subsequently, the Law Commission published a report in 2014 titled “Matrimonial Property, Needs and Agreements”, which listed the criteria that should be applied so that a nuptial agreement can be regarded as ‘qualifying’. The recommendation is that ‘qualifying nuptial agreements’ should be binding, enforceable contracts. The criteria are that:
the agreement must be contractually valid (and able to withstand challenge on the basis of undue influence or misrepresentation, for example);
the agreement must have been made by deed and must contain a statement signed by both parties that he or she understands that the agreement is a qualifying nuptial agreement that will partially remove the court’s discretion to make financial orders;
the agreement must not have been made within the 28 days immediately before the wedding (although naturally this criterion does not apply when entering into a postnuptial agreement);
both parties to the agreement must have received, at the time of the making of the agreement, disclosure of material information about the other party’s financial situation; and
both parties must have received legal advice at the time the agreement was formed.
So when should you do this? Well, ideally the incorporation documents of the company will impose this obligation at its inception, with the discussions for shareholders to enter into a nuptial agreement preceding incorporation. This will ensure clarity for all concerned from the outset.
However, for companies already in existence, various other opportunities might arise during which it would be worthwhile considering making an alteration to the documents that govern what happens with the company. Any restructuring of the company or refinancing could, for example, provide an opportune time to oblige all shareholders to enter into a nuptial agreement. In fact, there need not necessarily be another event to trigger these discussions; they can take place at any time, with the company’s core documents being amended, entirely independently of all other matters.
By having a requirement for all shareholders to enter into, and execute, a nuptial agreement (whether prenuptial or postnuptial), this should help protect the company as best as possible from any difficulties that may arise as part of divorce proceedings.
The information contained in this post is for general guidance only, and does not constitute legal advice. For bespoke and tailored advice in relation to your personal circumstances, please do not hesitate to get in touch.