Whether you run your own business, are part of (or heir to) a family business, or run a business together with your soon-to-be spouse, a prenuptial agreement is a solid investment as you get ready to say ‘I do’. 

While it’s not always enjoyable to think about what might go wrong before you’ve even walked down the aisle, it is most certainly advisable. What happens if you separate in the future? How will your business be divided? If it’s a joint venture, will you continue to run it together? Does one partner own more than the other? How are your roles and responsibilities defined?

Without the proper planning and legal safeguards, a business can be risky in the event of a separation or divorce. 

In addition to shareholder agreements and/or articles of association, this week’s blog will take a look at why a prenuptial agreement can provide some clarity about the fate of your business should your relationship break down.  

Why add a prenup to your business agreements? 

Whether you’ve built your business from the ground up or inherited a multi-generational institution, you don’t want your hard work to be thrown into chaos because your relationship has come to an end. 

While prenups aren’t legally binding in the UK, they can be highly persuasive during proceedings, as long as both parties have entered them properly after taking robust and independent legal advice. 

One of the biggest advantages of a prenup is that it will help reduce any ambiguity about the division of assets during divorce proceedings, especially when it comes to your business. 

A prenup can help you to: 

  • Protect any shares you hold in the business and classify them as separate from the marital ‘pot’. 
  • Prevent an ex-partner from trying to buy your shares once your divorce is finalised.
  • Lay out clear instructions on how any income from the business should be handled in the event of your divorce.

What clauses might you include in a prenup to protect your business? 

If you’re considering entering into a prenuptial agreement, you should always seek expert legal advice and have the document drawn up by a qualified family solicitor. That way, they can thoroughly appraise and view your assets and advise which clauses will be appropriate. 

Here are just a few of the clauses that might be considered. 

Property is separate 

To avoid argument and contention during discussions around asset division, you may wish to state that any existing value or income derived from the business is separate from your shared marital assets. This might be especially important if you’re part of a family business with which your spouse isn’t involved. 

Non-compete clause 

If you and your ex-spouse decide to go your separate ways in business and your personal lives, you might want to consider a non-compete clause. This could help to protect your business’s market position if your ex-spouse decides to start another business of their own.  

Confidentiality clause

You want your private business information to remain exactly that—private. A confidentiality clause can help protect those details, regardless of the relationship status between you and your ex-spouse. 

Social image clause 

Unfortunately, not all relationships end amicably. A social image clause protects your reputation as a business owner and protects you from your ex-partner spreading sensitive information that may harm your business. 

How will your spouse be compensated for their work? 

If you’re bringing a spouse into your existing business, you must consider their role and how they’ll be paid. Are they a director of the company? Will they receive a market wage, profit share, or be compensated differently? It’s always best to make sure you have this agreed in writing with your spouse, and in a prenup, we can deal with how that role can be properly brought to an end if you separate. 

Families are complicated. Add in a business, and things can get even more complex. At Harrogate Family Law, we understand the intricacies of divorce, separation and everything that goes along with it – including how to protect your family business. We’re here to provide the peace of mind you need to protect yourself, your business, and your future. Get in touch now.