Pre-Nups and the Family Business
Pre-Nuptial Agreements can be a thorny subject between a couple when they are planning a wedding. No-one likes to think the marriage will not work and a Pre-Nup is, of course, on the basis of what will happen if it doesn’t.
It is better if a couple can address a Pre-Nup as early as possible before the big day so they can then deal with it, get it out of the way, and focus on all the much pleasanter arrangements for their wedding.
One particular aspect of Pre-Nups that can cause difficulty is the family business. I will refer in this example to the Husband-to-be but it could equally be the Wife-to-be’s family who have the business. I will call our couple Ryan and Megan.
If there is a family business it may have been started by the Ryan’s Father, or both his parents, or even Grandfather and possibly sometimes going back further than this. At a certain point, Ryan may have started working in the family business and depending on how old he is, may have worked his way up. As part of that, it is quite likely he will have obtained shares in the business. These might have been provided to him as part of his income as he worked in the business or, on some occasions, gifted to him by his parents, or grandparents, or acquired from inheritance on, say, his Grandfather’s death.
When Ryan is planning to marry his family, let us say in this instance, it is his Mother and Father who are involved now in the business, can become very concerned about the impact on the business if his marriage does not work out and his Wife wants a part of his shareholding. Whether or not shares can, in any event, be transferred will depend on the Shareholders Agreement. There is often provision setting out the process for disposal of shares and that they have to be offered to the other shareholders first. Some Shareholders Agreements provide for shares to be transferred to a spouse and, strictly, this only applies prior to Decree Absolute on divorce. In itself, this is a complex area.
The temptation in this situation is for the family to prompt Ryan, often quite firmly, to seek a Pre-Nuptial Agreement that Megan has no claim or interest in his interest in the family business. On the face of it, it sounds quite straightforward.
However, what will happen when Megan seeks independent advice (as she is expected to do before signing a Pre-Nuptial Agreement) it will be explained to her that if Ryan works in the family business his income, and his shareholding (which will provide dividend income) may be all that he has. The couple may also buy a house, but apart from that, a significant amount of Ryan’s assets will be in the business. In signing a Pre-Nuptial Agreement saying Megan will not make any claims against it, she could leave herself in a position where there is very little to claim against. This will be particularly relevant if the business owned the house that the couple are to live in.
As all of this unfolds in the context of seeking a Pre-Nuptial Agreement it can be quite upsetting for all of those concerned in the run up to their wedding.
I would suggest that if, as in this example a husband-to-be is considering a Pre-Nuptial Agreement that he has initial advice at a very early stage before he moves into a position of suggesting what that Pre-Nuptial Agreement will look like. The details of it can then be explored and the final proposal put forward in a Pre-Nuptial Agreement to the Wife-to-be can be far less likely to cause upset.