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Avoiding a bitter business battle; Family businesses and entrepreneurs will have greater protection in divorce if prenups become legally binding, says Marc Saunderson, partner and family law expert at Mills & Reeve.

Byline: Marc Saunderson

FAMILY businesses and entrepreneurs may be offered greater protection from bitter divorce battles following recommendations that prenuptial agreements become law.

The Law Commission, a statutory independent body that advises on law reform, recently called for prenups to be legally binding in divorce settlements. Currently there is some uncertainty as to the legal status of prenups, although they will nearly always be followed by the divorce courts.

For the first time, individuals will have certainty about being able to ring-fence assets and effectively 'opt out' of sharing those assets in the event of divorce.

Businesses are often at the centre of bitter and expensive divorce battles. For entrepreneurs, many are desperate to protect the company which they have invested much time and energy building up, while families are keen to preserve wealth and keep the business in the family.

Prenups have increased in popularity in recent years and, if the Commission's proposals become law, it will provide greater certainty for family businesses and entrepreneurs.

Prenuptial agreements have been common for families, particularly amongst those that have seen the company pass through the generations and are keen for it to remain in the bloodline.

There have been cases where a family member has, for example, held a reasonable sized stake in the company and the soon to be ex-spouse has made a claim on half of that shareholding.

Under the present law there is no guarantee that they wouldn't succeed in their claim. In extreme cases the business, which has been in a family for generations, has had to be sold. Frequently, it is necessary for the business to be re-structured to facilitate a divorce settlement.

The report recommends that if the Nuptial Agreements Bill is enacted there will be two categories of nuptial agreements - Qualifying Nuptial Agreements (QNAs) which will be automatically binding and Non- Qualifying Nuptial Agreements (NQNAs) which are those that fall short of the requirements to be QNAs but may still be binding.

Under the recommendations, requirements for such agreements are that, at the time of signing, both parties must disclose material information about their financial situation and have received legal advice.

A further restriction, under the commission's proposals, is that agreements would only be enforceable "after both partner's financial needs, and any financial responsibilities towards children, have been met".

Therefore whilst couples would be able to opt out of 'sharing' they won't be able to use a prenups to opt out of providing for reasonable needs, for example for housing or money to live on.

Only recently a judge overruled a prenup agreement after he found that the partner's financial needs were not being met For family businesses and entrepreneurs who are thinking of entering into a prenup, it is important to note that there is no point in drawing up an agreement which is unfair or would not meet a spouse's financial needs, as it would likely be overruled in the event of divorce.

Families are keen to preserve wealth and keep the business in the family
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Publication:The Birmingham Post (England)
Date:Jun 26, 2014
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