Five reasons why an entrepreneur should have a pre-nup

The English court has wide powers to deal with assets, including shares in a privately-owned business, on divorce.  If fairness cannot be achieved by any other means, this can include the power to order a transfer of shares by one spouse to the other, or a sale of a spouse's shares on the open market and a division of the proceeds.  Clearly this could have serious adverse implications, not only for the shareholder spouse, but also their business partners, employees and others connected with the business.  In order to protect a business against this risk, it is highly advisable for entrepreneurs to enter into a pre-nuptial agreement. 

While the primary incentive for an entrepreneur to enter into such an agreement is, of course, to protect the business from the disruption that can be caused by a divorce, there are other valuable benefits that may flow from going through this process:

1. To create certainty: Parties entering into a pre-nuptial agreement have the freedom to agree at the outset of their marriage how their finances are to be divided if they later separate or divorce. This can give both parties a sense of autonomy and peace of mind about their financial future.
2. To improve communication: Discussing finances and what should happen in the worst case scenario can be difficult.  However, tackling these issues head on can help to ensure that both parties are embarking upon the marriage with similar expectations and can strengthen the foundations of the relationship.
3. To ensure transparency: In order for a pre-nuptial agreement to be effective both parties will need to provide summary financial disclosure. For an entrepreneur in particular, it will be beneficial to record the value of their business interest at the time of marriage, as any pre-marital value will be treated by the court differently to any value that may be created during the marriage.
4. To minimise acrimony: Having a pre-nuptial agreement in place should minimise the scope for argument in the event of a divorce as both parties have already considered and agreed what sort of outcome they each feel would be fair to them in all of the circumstances.
5. To save time and cost: While a pre-nuptial agreement does not tend to place specific figures on what each spouse is to receive on divorce, it will contain a set of governing principles by reference to which any settlement will be calculated. In the event that there is a dispute, the existence of such an agreement should operate to minimise time and cost of reaching a resolution. 

While pre-nuptial agreements are not currently legally binding in England and Wales, they can be highly persuasive and the Court is increasingly placing weight on such agreements if they are entered into properly and in adherence with certain legal safeguards.  The same is true of post-nuptial agreements.  Every nuptial agreement is a bespoke document designed to accommodate a couple's particular circumstances.  There are other measures that can be taken in conjunction with a nuptial agreement to protect a business against the risk of divorce. Please contact a member of the Family team if you would like further information.