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Is your family business protected by a pre-nup?

It’s hardly surprising that when a share-owning family member decides to get married, there can be a ripple of nervous apprehension running through the family business.  However much the new bride or groom is welcomed into the family, there is always that nagging worry that in the future, an acrimonious parting could bring the business to its knees.  

Prior to 2000, the courts were disinclined to make final orders that could impact on a business to the degree that the business would have to be sold.  But the landmark case of White v White introduced a fundamental change in the way the courts treated a business, making it clear that  businesses were not automatically protected and, in certain cases, the sale of a business may be necessary to finance the divorce settlement.

The following year, in another case involving a family business, the court gave the husband three years to raise the final instalment in the financial settlement to the wife, in the full knowledge that the husband would have to either sell the business or seek major financial re-scheduling.

The fact is that courts are for more prepared to make decisions involving assets enshrined in a business where the only course of action for a businessman or woman is to sell the business or re-finance.  With the current state of commercial lending, selling the business is the most likely route.

Following the recent case involving German heiress Katrin Radmacher’s victory over her former husband Nicolas Granatino (when Supreme Court judges decided that the pre-nuptial agreement signed in 1998 and stating that in the event of divorce, neither party would seek to benefit from the property of the other should be honoured in October last year), the government requested the Law Commission to advise on the need for new law to give legal teeth to pre-nuptial agreements.

It seems highly likely, once the Law Commission’s consultation is concluded, that there may be new law supporting the premise of pre-nuptial agreements, as the contract would limit any potential damage that an unpleasant divorce could deliver to a family business.

Just what the Law Commission will advise, how far any new law will go and how much power the courts will have to overturn agreements made by the couple remains to be seen, but it’s certainly something worth considering and discussing with your shareholders now.

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