Protecting family assets
We are often asked what the best way is to protect a family business and assets in the future and one issue which is regularly overlooked by families is the risk from a potential future divorce. Whether your children or other family members own shares in or are partners in the family business, it is important to plan ahead for every scenario. Sadly with 42% of marriages in England and Wales ending in divorce there is a high risk that your business could be at risk if not sufficiently protected.
Firstly, if the marriage hasn’t yet taken place then a pre-nuptial agreement should be drafted. This sets out how your assets will be divided afterwards and it will be unique to each couple. Typically, a prenup focusses on the assets which each person brings to the marriage such as business assets, inheritance, savings and even pets, but it may also include assets acquired during the marriage such as a future inheritance.
Whilst prenups are not yet legally binding, the courts will take them into consideration and there have been a number of court rulings where prenups have been enforced. For a court to take a prenup into account they will be looking to make sure that;
- Both parties had access to and took independent legal advice prior to signing the agreement.
- That the agreement is both fair and reasonable to both parties.
- The agreement also meets the ongoing needs of any children who were alive when it was signed and or who have been born since it was made.
If a marriage has already taken place then a post-nuptial agreement could be entered into which might help to ringfence certain assets. Again, it is important that both parties have access to independent legal advice before deciding to make an agreement and there is no guarantee that it will be taken into account by a court in the future.
If your children are co-habiting with a partner then a cohabitation agreement is recommended which sets out the agreement in the event of a future split. This is especially useful where the ‘bank of mum and dad’ have helped a child onto the property ladder.
Other options to ensure family succession in a business and assets such as property and land to remain in the family is the use of a family trust. Again, as no two families or situations are the same it is recommended that legal advice is taken before any major relationship changes are embarked upon.
Julie Hobson can be contacted at firstname.lastname@example.org