Denise Laverty : Why pre-nups aren’t only for the rich and famous

Denise Laverty, legal director, family law at Gilson Gray LLP is well aware of the complexities of high-value matters involving family-owned companies and partnerships, often with an international element and in advising on pre-emptive arrangements that help to avert the need for adversarial legal encounters in the event that a relationship breaks down.

Key to this, she explains, is ensuring that the client understands what constitutes a matrimonial asset, which is especially important where there is a company or partnership involved – and make sure there are no grey areas.

What’s in the pot?

“Essentially anything acquired prior to marriage is not a matrimonial asset so if a partnership was put in place prior to marriage and if it retains the same name and there has been no restructuring, a lawyer acting for a spouse who is not a partner in the partnership might look at the partnership accounts to ascertain whether there is any value in the partnership that could be deemed to be matrimonial property,” she says.

Any changes to the structure of a business, however, can change the situation significantly. If a married business owner starts a business by himself before the marriage, the business interest will not fall into the matrimonial pot – but if he then goes on to incorporate the firm it becomes a matrimonial asset that will be available for sharing with the other spouse if the couple later separate.

Issues also arise where a company is restructured during the marriage.  Denise cites the example of a very large international company which had started off as a family owned business.  The client’s husband had, as the result of advice given to him, sold back some of his shares and was issued with shares in a newly created subsidiary of the company.

The original shares – which were worth several million pounds – were all acquired prior to marriage and therefore were not matrimonial property. However, as soon as he acquired shares in the new part of the company during his marriage those shares became matrimonial property and accordingly several million pounds fell into the matrimonial pot which would not have happened if the husband had just kept the original shares.

The consequences of change

Before changing the structure of the company, says Laverty, he might have considered consulting a family lawyer as well as his financial consultants. “We’re very keen to ensure that anyone advising people in these situations in a corporate role is aware of the possible implications,” she says.

“They may have given very good corporate and tax advice in helping to restructure the business and the business owner was clearly financially astute, but there was still a lack of awareness of the potential consequences in the event that a relationship breaks down at some point in the future .

At the time that a company is restructured the parties might be very happily married and a separation is probably the furthest thing from their thoughts – and from their families’ thoughts.

“However, although separation is a difficult thing to consider it’s also very important.  We would stress to advisers who are dealing with a business restructuring that they should flag up and make their clients aware that restructuring could have consequences in the event of separation,” she says.

She also points to situations in which a spouse’s wife may be an employee of the company. Often this is done where the wife in reality plays little or no part in the company but receives a salary under the nil rate band for income tax purposes. Following a separation the other spouse may attempt to remove them from the payroll, potentially resulting in an unfair dismissal claim. Or the spouse who has been made an employee may argue that they have made a significant contribution to the success of the business and thus should share in its value, even if it was set up before the marriage.

Sensible precautions

“These are examples of why a pre- or post-nuptial arrangement should be seriously considered,” she says. “Discussing and establishing what is – or what might potentially become part of – the joint matrimonial assets is a valuable part of the process when making a pre- or post-nuptial agreement.

Other things more fundamental to family life than corporate restructurings or share issues can arise during these discussions.  “For example, one of the parties may have owned a property before their relationship  or had savings and provided the property is not sold or the savings used to acquire an asset during the marriage then  they are not treated as a matrimonial asset if the couple decide to separate.”

“So although the legislation itself provides that anything brought into the marriage is ring-fenced it does not extend to assets acquired from pre-marital savings or from the sale of pre- marital property and a pre-nuptial agreement   can ensure that anything subsequently acquired from pre-matrimonial property will not be included in the matrimonial pot if the couple were to separate. In a situation like the one described above, at the point where a company is being restructured a post-nuptial agreement could have been signed which would have ring fences the new shares acquired.”

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Most pre-nuptial agreements, she adds, don’t try to pre-empt or foresee what a financial settlement if the couple separate should look like; they are usually entered into to make sure that whatever is brought into the marriage is ring fenced no matter how many times it subsequently changes its form.

There has been some increase in the number of people having a pre-nuptial agreement in recent years but not as much as Laverty might have expected.  “I think there is still a lack of willingness to discuss pre-nuptial agreements because people fear that it might be perceived that they are entering into the marriage thinking that it is going to fail,” she says.

“However, we routinely take out home insurance and holiday insurance, while hoping that we won’t have to use it and pre-and post-nuptial agreements are akin to that.

“Scotland has a good legal framework regarding financial matters on divorce, in a situation where pre-marital assets have been ‘converted’ into a matrimonial asset then that person has to argue why it would be unfair to divide the matrimonial assets equally.  A judge or sheriff has the discretion to do so in such circumstances but there are no guarantees as to which way the decision will go,” she says.

“Pre- and post-nuptial agreements are useful because they allow people to reach an agreement at a time at which they are able to discuss things in an amicable and reasonable way ,  thus avoiding the uncertainty and expense of a court action should they ever separate.  A good family lawyer should ensure that  this ethos is preserved during any discussions about such agreements.

Denise Laverty, Legal Director, Family Law at Gilson Gray

Denise is recognised as a leader in her field and is well-respected within the community of family lawyers in Scotland and for her particular strength advising on high-value financial matters involving family-owned companies and partnerships often with an international element. Denise has over 26 years’ experience of acting for married parties and cohabitees in all aspects of divorce and separation including advising on and negotiating complex financial provision following separation or divorce; advising on and drafting cohabitation and pre-nuptial agreements; resolving children disputes including residence, contact, parental rights and relocation and obtaining court orders where necessary within Scotland and England. 

You can contact Denise on 0141 530 2021 or for more information please visit www.gilsongray.co.uk