Prudence Amid the Romance – Pre-nuptials and the Family Business

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Rubáiyát of Omar Khayyám once said, “Why ponder thus the future to foresee, and jade thy brain to vain perplexity?” The wisdom of the poet must never be lightly ignored. From the Persia of the Seljuks to the present day, his words remain true. Since scholars first translated them into English 150 years ago, they have inspired generations of diffident Europeans to think deeply on life and love. But we contemplate the Rubáiyát at a time when divorce is increasingly common. The thought of aggressive litigation picking over the embers of a relationship, with bundles of evidence filling a court-room and aggressive cross-examination back and forth, fills most people with horror; much better, surely, to resolve financial issues before a couple ever get married by a mature and thoughtful discussion around a table. The insurance policy of pre-nuptials surely lack the romance of the poet, but it still has much to commend it.

The relationship between pre-nuptials and the family business.

Pre-nuptial agreements are particularly useful where a family business is concerned. International families with connections to London in particular should be aware of the extensive powers of the English courts to interfere in business life.

English judges want to preserve companies as going concerns if they can; but in the final analysis, their priority is to ensure that husbands and wives have enough on divorce to meet their financial needs. They will look at whether businesses have assets which can be sold, or borrowed against, to release capital. They can and will transfer shares from one spouse to another. They will analyse, in detail, the income a business generates to see how much maintenance can be paid.

Moreover, the process itself is highly intrusive. An English court will expect detailed disclosure of the business‘s financial position; and potentially an independent valuation by a forensic accountant. The time and trouble of having a business subjected to an accountant’s microscope is significant.

Since 2010, following Radmacher v. Granatino (Farrer’s case in the Supreme Court), English courts will uphold pre-nuptial agreements which have been “freely entered into … with a full appreciation of [their] implications unless in the circumstances prevailing it would not be fair” to do so. They will respect the free choice of two adults to organise their financial affairs as they wish, and strike their own bargain on marriage.

“Fairness” comes in two parts. First, both party’s financial needs must be met on divorce; if not from his or her own resources, the court will expect the other party to make appropriate arrangements. Second, proper procedure needs to be followed: so both parties need independent legal advice, and must give full disclosure of their financial position.

If these tests are met, a pre-nuptial agreement can provide a clear and decisive statement to ring-fence claims against pre-acquired, inherited or business wealth. A shareholding, or a dividend stream, can be kept separate from other assets and put to one side.

So the heir to a family business would be well-advised to sign one in good time before the wedding. He can then return to poetry in confidence.