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The Benefit of a Pre-nuptial agreement to Preserve your Business

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This has been submitted by Slater and Gordon

A business start-up or owner may already have a shareholder agreement or partnership agreement in place to protect the running of a business when circumstances change, however the benefit of a pre-nuptial agreement should not be overlooked. Whilst it may not be the most romantic discussion before marriage, undertaking the step of having a pre-nup drafted can be the decisive factor in dividing assets upon separation.

A business will be regarded as a financial resource by the family court and therefore is open to be divided between you and your ex as part of the divorce process. Setting out prior to marriage what would happen to the business in the event of separation can help preserve your business, ensuring minimum impact to you and your employees.

The court’s in England & Wales do not legally enforce the terms of a pre-nup agreement as it is seen as a written contract between you and your spouse, yet when properly executed it can be provided with a great deal of weight if later considered by the court.

The following tips should be considered when thinking about a pre-nup agreement:

  • Include a provision that provides any increase in value to the business is to be treated as separate property. If your business were to increase in value following marriage a pre-nup agreement can ensure that the increase does not necessarily have to be shared with the former partner.
  • Ensure an effective agreement is in place for the business, such as a shareholder agreement or partnership agreement. This can be crucial where there is conflict between the family law and commercial law jurisdiction.
  • Limit your debt liability and ensure all personal liabilities are retained in those whose name they are in. This will minimise the chance of the business being mingled into the marital property.
  • Ensure full records are retained concerning the business. Time changes everything and your position at the start of the marriage may well be a determinative factor in considering how the matrimonial finances should be divided.

The conduct and contributions of parties over time can change the effectiveness of a pre-nup agreement therefore it is important to consider reviewing the agreement periodically. Agreements should contain a review clause for legal advice to be obtained upon the terms and ensure the agreement itself remains effective.

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