A Pre-Nuptial Agreement Can Protect Your Business

The wedding season is nearly at an end.  Whilst it is always hoped that the couple will have a long and happy marriage, I hate to be the bringer of doom and gloom but sadly, some marriages don’t work out, and this can have implications for the family business.

Often the main business owner will make his/her spouse a shareholder or partner, as a tax-efficient way of receiving income. On the face of it, this gives the spouse the right to a share in the business, and that may need to be bought out or the business sold if they divorce. Even if there is a shareholder/partnership agreement, or the spouse is not a co-owner, the judge has power on a divorce to adjust things to achieve what he thinks is fair.

The problem can be particularly acute in farming businesses. Where, typically, the partners are the parents and the son, and the son’s wife is taken into partnership, the farm may need to be sold if the relationship breaks down.

There is a potential solution. It’s not particularly romantic (but then lawyers seldom are). You could consider a pre-nuptial agreement, spelling out that the spouse will not have any right to a share in the business if things go wrong. The courts now take these agreements into account in their decision-making.

The courts don’t have the same power to adjust property interests between cohabitees, but a shareholders’ agreement or a cohabitation agreement can achieve the same result.