Posted by David Cobern on 13th October 2020

A strong pre or postnuptial agreement is the most effective way to protect your family business in the event of a divorce explains director and family lawyer David Cobern.

There is nothing quite like a family business. Heritage, commitment and that family connection make it a very special thing. Anyone involved in a family business knows that very little comes between them and their partners.

So what happens when somebody who is integral to the business falls in love and plans to get married. On the one hand of course, the natural instinct is to be happy for a relative who has found love, but there is another, often unspoken feeling which is the inevitable anxiety that this change might upset the smooth running of the business. The reason? Well, everyone knows there is the possibility of future separation and divorce with the attendant financial settlement.

Separation, divorce and your family business

If one of the partners in a family business experiences divorce, this can cause disruption for the business. There is the obvious emotional element for everyone involved, but also the loss of focus on the affairs of the business during a difficult divorce. Additionally, there is frequently intrusion into the affairs of the business through asset valuations and disclosure of business accounts which family businesses often prefer to keep private.

There is also the possibility that the divorcing partner may need to raise capital against their interest in the business. This can affect liquidity and disrupt carefully made business plans. It can also impact upon succession planning.

Family business and prenuptial agreements

A Pre-nuptial agreement can help to protect the capital value of a divorcing partner’s share in a family business by ring fencing that interest from claims in the event of a divorce.

Similarly, a postnuptial agreement can be entered into after marriage if it is felt that it is important to protect a family member’s interest in a business.

There are certain conditions which must be met to ensure that pre-or post-nuptial agreements are upheld in the event of a challenge by an unhappy divorcing spouse.

  • There must be no pressure from the other spouse or third parties or from the surrounding circumstances (e.g. asking someone to sign on the eve of the wedding);
  • Each of the spouses must have independent advice;
  • There must be a full disclosure of the assets; and
  • Crucially, the provision which is made by the agreement must meet the needs of both spouses and any children.

 

If you need more informaiton about your situation or would like advice on your family business and prenuptial agreements please do get in touch with David Cobern email [email protected] or tel: 01392421777

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