Pre- and Post-Nuptial Agreements for Business Owners | Protecting Your Company and Your Future

If you or your partner own shares in a private limited company, it’s important to understand how those shares may be treated if your marriage ends.

During divorce proceedings, the Court will usually assess the value of any shares and decide whether they should be considered a matrimonial asset and therefore are subject to the sharing principle.

This applies not only to only large companies with significant turnovers, but also to small private limited companies - such as those created when sole traders are advised by their accountants to set up limited company to take advantage of lower tax rates.

Many business owners are often unaware that by incorporating, they are creating an asset that may need to be valued and factored into any financial split on divorce.

What Happens to Business Shares During a Divorce?

It’s rare for a business to be sold outright in a divorce. Instead, there are usually two main approaches:

• Offsetting: The spouse who doesn’t hold the shares may receive a larger portion of other matrimonial assets instead of a shareholding.
• Buy-out arrangements: One spouse may buy the other’s potential interest in the shares.

As part of the financial disclosure process, the share-owning party will be required to provide a valuation, usually from the company accountant.

However, it is rarely the case that the company accountant’s valuation will be accepted by the other spouse because it is often assumed that the company accountant will side with the party who owns the shares. Therefore, it is often necessary to obtain a valuation from an independent accountant who is instructed to act as a Single Joint Expert to value the shares.

Complications on Divorce for Business-Owning Couples

If the company was set up before the marriage, then disputes may arise about what proportion of the shares are ‘matrimonial’ and should therefore be shared. There can also be disputes where shares have increased in value post-separation as a result of post-separation endeavours.

Other issues can arise on divorce in respect of the running of the company. For example, both spouses may hold shares for tax efficiency purposes, even if only one is involved in running the business. While this arrangement can be beneficial during the marriage, it can create problems after separation, such as:

• Voting rights that could restrict one spouse’s ability to run the business.
• Dividend payments that must be split according to shareholdings, even when the relationship has ended.

How Pre- and Post-Nuptial Agreements Can Help

One effective way to protect your business and avoid lengthy disputes is to enter into a Pre-Nuptial Agreement (before marriage) or a Post-Nuptial Agreement (after marriage).

Whilst the Court has the final say, they must give decisive weight to a Nuptial Agreement provided “it has been freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement” (Radmacher v Granatino 2010).

For business owners, a well-drafted agreement can:

• Ring-fence the value of shares acquired before marriage.
• Protect post-separation increases in value due to one party’s efforts.
• Provide a fair valuation process and a buy-out mechanism in case of divorce.

Our Expertise in Nuptial Agreements for Business Owners

At Hegarty, our specialist family lawyers have extensive experience advising business owners on protecting their assets through pre- and post-nuptial agreements.

We understand the unique challenges faced by entrepreneurs and will work with you to create a tailored agreement that safeguards your business while being fair to both parties.

Contact our team today to speak with one of our expert family law solicitors about protecting your business interests, and your future.