There has been much said and reported about the use of Pre-Nuptial agreements between couples embarking on marriage as a sensible way to plan for the future in the unfortunate event of a divorce.
We think that there is more that can be done where the parties are involved in a business.
In that situation, thought should also be given to protecting the business itself from the after effects of any marital demerger.
Where one or more directors are married, if divorce proceedings start then the business and its owners want to know what is going to happen to that director and their interest in the business.
If circumstances change because of divorce of a board member, uncertainty can be avoided by making provision in the Shareholder’s Agreement. Limits can be placed on voting rights, ownership and valuation to name but three.
If you are in or going into business then the following 10 points should be considered as part of the Shareholders Agreement.
We call it The ‘Corporate Pre-Nuptial’ Agreement and it can help protect a company from the fallout of a divorce among its directors or shareholders, the impact of which could be damaging to the business as a whole.
And here are the 10 points that make up our Corporate Pre-nuptial Agreement:
- Define what matters require the consent of shareholders, for example the extent to which the accounts concerning the company are available to third parties
- Make provision for the transfer of shares by the departing spouse on pronouncement of decree absolute
- Provide for resignation by the departing spouse
- Enter into a compromise agreement to protect against things such as future claims against the business
- Confidentiality – ensure that the departing spouse does not reveal any intellectual property or other commercially sensitive information
- Valuation – include a mechanism for valuing the shareholding in a divorce scenario
- Future proof the agreement. Anticipate as best you can what might happen as the business grows. Include provisions that will apply to current directors who may marry in the future in order to avoid having to amend the agreement numerous times
- Dismiss claims against the business or the remaining spouse’s interest in the business on divorce
- Provide for the parties’ heirs, receivers, executors or trustees to be bound in the same way should one predecease the other
- Consider a side agreement between the married shareholders to be read in conjunction with the main shareholders agreement and which binds them alone
The established principles of a binding pre-nuptial agreement still apply.
It is therefore important that the terms are agreed as far in advance of the marriage as possible and that there is no pressure upon the parties involved.
There should be detailed financial disclosure exchanged by the couple and both parties should receive independent legal advice on the terms before signing the agreement.
If these guidelines are followed then the chances of the impact on a business of a divorce among its directors or board members can be minimised.
About James and Frank
James Thornton and Frank Arndt, matrimonial experts, founded Paradigm Family Law in 2014. It is a niche practice specialising in family law advice and the first family law firm to offer services on the basis of BESPOKE FIXED FEES tailored to clients’ particular needs and requirements.
James and Frank have over 30 years’ experience in the field of family law, and provide specialist legal advice for family matters including international family disputes.
This article was first published by Paradigm Family Law