Wed 02 Dec 2020

To Prenup or Postnup - that is the question?

My blog of 9 November highlighted the impact of incorporating your business, or of transferring shares to your spouse during the marriage in the context of Scots family law

The purpose of this blog is to set out what can be done, in advance, to avoid the potentially costly and stressful disentanglement of such matters following separation in Scotland.

You will have heard of the phrase "prenup", but you may not be so familiar with its equivalent following marriage, a "postnup". Married couples can enter into contracts in advance of their marriage (a prenuptial agreement), or after marriage (a post nuptial agreement) to provide for what they would want to happen in relation to certain assets in the event they later separate.

If restructuring your business is efficient in terms of tax planning, you should consider speaking to a family law expert in advance of signing any paperwork to make sure it is also prudent having regard to your personal circumstances. This is good advice whether your marriage is likely to endure or otherwise.

Prenups/ Postnups are not suitable for everyone. Some view them as unromantic. However getting married is arguably the most significant financial decision a person will make in their lifetime. Therefore, in the same way that you may automatically insure expensive jewellery/ your car/ your house/ your life from an uncertain future financial loss, it is money well spent to get specialist advice regarding how best to protect your business/ your assets from the unwanted consequences of divorce in the hopefully very unlikely event that that happens. Just like any other insurance policy - one hopes never to have to use it, but knowing it is there should the worst happen is an invaluable comfort. Obviously a prenup/ postnup is more sophisticated than your standard insurance policy and there is not a "one size fits all". It is therefore important to take advice as early as possible in advance of marriage, or any important financial decisions to ensure that both parties are well informed.

The effectiveness and legality of a prenup/ postnup is a question that clients often ask. Whilst it is true that prenups or postnups remain largely untested by the courts in terms of financial provision on divorce in Scotland, the legislation does specifically provide for such a contract to be a valid reason to depart from the default starting point of equal sharing of the matrimonial property (see my earlier blog), assuming the prenup/ postnup was fair and reasonable at the time it was entered into. A number of factors can indicate whether a prenup or postnup was fair and reasonable at the time it was entered into - parties having had the benefit of legal advice is only one, but importantly the case law states that a court should not be overly eager to reverse a written agreement validly entered into between two consenting adults who have chosen to forward plan and manage their affairs. Therefore assuming the contract was prepared and finalised with all of these considerations at the fore, prenups/ postnups do work, and are routinely entered into. They are most commonly used to ring-fence inherited or gifted assets, but their purpose can be more wide ranging if that is what parties want. As I say, it would certainly be advisable to consider putting in place a prenup/ postnup in advance of any business restructure in addition a shareholder's agreement or other recommended company law specific documentation.

Please get in touch if you would like to discuss your own circumstances. It is important to stress that this blog deals specifically with prenups/ postnups and their enforceability in Scotland. If, however, you would like advice about your own circumstances in the context of English family law we have specialist solicitors who are qualified in England and Wales too.

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