Pre-nuptial Agreements for Business Owners | The protection ALL business owners should have in common

When it comes to entering into a legal partnership, more often than not and understandably, spouses-to-be are not concerning themselves with the possibility of divorce or dissolution of their partnership. Suggesting a pre-nuptial agreement to your betrothed can leave a bad taste in their mouth.

However, separation does of course happen and the powers of the Court to investigate the assets and liabilities of the parties is often a surprise for those negotiating a financial settlement. 

For sole traders, farmers, small business owners and big businesses owners, this can be of a particular concern.

Since the 1800s, one of the most influential and long-standing legal principles that has determined how companies are dealt with by the Courts of England and Wales, is that companies are seen as separate legal entities, i.e. the Company as being separate from the role of humans as directors or shareholders. 

Arguably, the Courts of England and Wales have historically been unwilling and hesitant to dictate what a corporation should do or to ‘pierce the corporate veil’, mainly so as not to discourage competition and the concept of business enterprise which plays such a significant role in UK society.     

However, a case called Prest v Petrodel Resources Ltd and others in 2013 clarified this position and transformed the approach the Courts would take towards companies involved in divorce and dissolution proceedings. 

In essence, the case established that the Court can have the ability to transfer assets between parties in accordance with section 24 (1)(a) of the Matrimonial Causes Act 1973. 

Therefore, being aware of the range of the Courts’ powers is vital for business owners. While it might seem unpalatable, prevention rather than the cure, would reduce significant cost, time and aggravation. 

Every case varies and (should the case proceed to Court) every Judge would deal with the matter differently. This means the one assurance you have as a business owner going through divorce or dissolution, is that there is no certainty. 

Prevention and certainty can be achieved through a pre-nuptial agreement. 

These documents, so long as they are drafted correctly and both parties obtain legal advice and exchange full and frank financial disclosure, will be highly persuasive to the Court. 

For the document to have the most influence, it must be drafted as soon as possible before the date of marriage but, we would suggest, at least 28 days before marriage. The agreement can be a bespoke reflection of what the parties would wish to happen. Once completed, they should be revised periodically to keep them current and relevant to offer the parties as much protection as possible. 

Ultimately, they will give the business owner assurance over how their business and its assets will be treated should they divorce or dissolve their legal partnership.

The alternative of not having a pre-nuptial agreement in place, is certainly less palatable.