27th February 2020Pre-nup or Post Traumatic Stress?

Just got engaged on Valentine’s Day? Along with the ring and the champagne there may be one other not so romantic thing you need to think about. Gone are the days when pre-nuptial agreements (or pre-nups) were just the domain of the rich and famous – more and more millennials are seeing the benefit of setting out their finances up front and avoiding messy problems in future. In particular, if you own your own business a divorce can lead to the ownership of the business being transferred to your spouse and potentially the involvement of an ex-spouse in the business post divorce, something which is unlikely to be in anyone’s interest.  So, what are the key things to think about before walking down the aisle?

1. What is a pre-nup?

A pre-nup is a written contract entered into by a couple prior to marriage which sets out what the division of assets will be if the couple gets divorced.

2. Are pre-nups legally binding?

While there is no act of parliament in this jurisdiction making pre-nups binding, since 2010 courts have given increasing weight to pre-nups.  If the pre-nup is properly drafted, and is considered fair by the court, there is every chance it will be enforced by the court.

3. What do you need to know before agreeing a pre-nup?

To give your pre-nup the best chance of being enforced there are some things you should think about:

• It is important to remember that a pre-nup must be fair – it should be drafted so that the basic needs of the parties will be met on divorce from the available assets.  You can’t leave one party in need;
• To work out what that means in your case you should go through a process of disclosure, basically setting out in black and white all of the assets each of you have. This can be especially important for business owners who could find themselves being asked to transfer shares in their business to their partner on divorce.

• You might have to get expert help in valuing your assets. Some assets are fairly easy to value, for example property, cash or investments. However, for entrepreneurs and business owners, what is often their largest asset can be much more difficult to value. A business valuation is a specialist job requiring an expert to make an assessment of the earnings potential and risks attached to a business in order to assign a value to it. As a business can be the highest value asset held, it is important that a professional business valuation is undertaken in order to ensure that any value in the business is protected.  If you don’t get the valuation right at this stage, it could cause problems later on;
• Independent legal advice for both parties should be provided;
• There should be a reasonable gap between signing the pre-nup and the wedding so that there is not undue pressure placed on either party;
• Things are going to change so it is a good idea to look at and revise a pre-nup every few years, particularly if you have children.

4. What are the benefits of a pre-nup?

As people marry later and second marriages are more common, one party might bring considerable assets into the business and a pre-nup can help that party protect those assets, or a business built up over many years.

It’s not just second marriages, future inheritance can also be an asset that individuals want to protect.

If you have taken the time to value the assets correctly, and followed the recommended steps, then your pre-nup can be drafted in such a way as to ensure that if the worst comes to the worst and the marriage were to end in divorce, the Courts would enforce the pre-nup.  Divorce is a stressful time and having certainty as to the outcome takes some of that stress away and hopefully helps people separate with as little conflict as possible.

Contacts:

Helen James

Corporate Finance Partner

HW Fisher

hjames@hwfisher.co.uk

Louise Allard

Director

Allard Bailey Family Law

louise@allardbailey.com