You want a prenup, even when it’s uncomfortable to speak about | USAEMALL.com

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is a partner at law firm Maurice Turnor Gardner

I recently observed a heated exchange among a group of millennials. They were incensed that their friend, the groom, had complied with the edict of his father, the owner of the family business, that he had to have a prenuptial agreement before he married their other friend, the bride.

One camp felt that this was deeply offensive to the bride, whose prospective father-in-law clearly thought she was a gold-digger; another camp thought that the groom was weak and should have defied his father. The problem, as far as I could tell, was that no one had been told why a prenup made sense.

Prenuptial agreements used to be the territory of the rich, famous and non-UK resident. But since 2010 and the landmark case of Radmacher vs Granatino, the English courts have recognised the value of such agreements. While they are neither legally binding nor automatically enforceable, providing the terms are not unfair to the less wealthy party, they are increasingly persuasive. As the so-called Great Wealth Transfer gathers pace and UK inheritance tax increases loom, prenups seem more necessary than ever.

In many jurisdictions outside the UK, notably those governed by civil law, the rules surrounding marriage prescribe how the property rights of the couple marrying are defined both during marriage and on divorce. The system is well understood. For families from such jurisdictions, having a marital agreement is seen as neither unusual nor undermining of the marriage; it is customary and common sense.

Gradually, prenups have become more common among those who are settled in England and Wales. The purpose is straightforward: the agreement specifies what is to happen to the assets of a married couple if they divorce or separate. The recent case of Standish vs Standish went some way to clarifying who owns which assets when divorce strikes.

The principal hiccup for clients is that a conversation about how assets will be divided on divorce or separation can be very uncomfortable and is unlikely to be welcomed when a child imparts the happy news of their engagement, particularly if the intervention is unexpected. So why have such a discussion?

Think about those with a family business. As a private wealth lawyer, I advise entrepreneurs and family business owners on how their shares might pass on the owner’s death under their will. This is vital to ensure a smooth transition. Prenups are just another form of succession planning, providing a protection for the business by ringfencing it from potential financial claims on a divorce. Without addressing this outcome, the future of the family business might be in jeopardy.

As part of lifetime succession planning I advise that it is better to have a prenuptial agreement than not. But there is one major prerequisite, which is that it must be properly negotiated. To ensure that the agreement is as watertight as possible I always recommend using the services of lawyers (for each party) whose day job is divorce.

All of this sounds straightforward in the abstract, but how do you deliver the message of the importance of having this protection to family members?

As early as possible, families should have discussions about inheritance and the responsibilities of being successful family business owners. The guiding principles should be aired and agreed. The expectations of the family should encompass how families approach marriage and the contractual consequences. Nothing should come as a surprise when a fiancé(e) appears. The message should be that this is not a judgment of the incoming family member, rather it is an acknowledged fact of the family’s governance.

Even if the principles are well known, the negotiations can be derailed. Advisers can find themselves negotiating with one hand tied behind their backs.

In one family there was agreement on the standard approach for all of its prenuptial agreements: total separation of assets for all marrying couples. These were the clear instructions from the family office to the lawyers for the groom, who relayed them to those representing the bride. But such was the bride’s persuasive power that she convinced the groom he should be more generous, so her provision in the final agreement exceeded the instructions from the family office — awkward for the lawyers and tricky for the family office.

When it came to the aforementioned irritated millennials, no one appeared to have contemplated that this was a reasonable plan to protect the family business. Perhaps if the groom’s parents had better briefed him then there would have been less heat and a more rounded — and, dare I suggest, more grounded — discussion at the table.

Whatever your economic status, clear communication on how assets will be managed during a marriage should be the starting point for all couples. Where better place to begin that debate than with a prenuptial agreement, however uncomfortable the conversation might be?