‘Black Coffee’, Clarity And Convenience: The Commercial Logic Behind Prenups
Published on 12 October, 2021 | Abigail Lowther
Despite all the uncertainty created by the coronavirus pandemic, one clear economic indicator emerged in the UK.
According to figures issued by the House of Commons’ library earlier this year, the number of trading businesses increased by 112,700 during 2020, taking the total to approximately six million (https://commonslibrary.parliament.uk/research-briefings/sn06152/).
To put a human face on those statistics, some of the men and women who decided to form their own companies may have lost their jobs due to the commercial impact of lockdown.
Others may have used the dramatically different change in circumstances to put into action long-held ambitions to be their own bosses.
When doing the planning necessary for an effective business strategy, I wonder how many of those individuals thought about a pre-nup.
After all, when firms are set up, it’s routine to think of things such as where the work will come from, what equipment is needed and, of course, cash flow.
It’s also essential to consider what sort of professional indemnity or public liability insurance is required.
Even though it might not seem like insurance, that’s essentially what a nuptial agreement – either a pre or post-nup – is.
Of course, when couples choose to marry, romance is a factor but even in setting up home together, insurance is an important part of keeping those things which we value – our loved ones, our health and our property – safe and protected.
Nevertheless, real life happens and it’s a fact that many marriages ultimately end in divorce.
Data from the Office for National Statistics (ONS) shows that one-fifth of spouses will go their separate ways before reaching their tenth wedding anniversary.
With that in mind, you could argue that it makes sense to put measures in place which at least stand a chance of limiting the personal, professional and financial damage which a break-up can inflict.
People often think of pre-nups in relation to their personal assets.
That’s been increasingly the case since a fundamental shift brought about by a Supreme Court ruling in 2010.
As a result of that judgement, courts now ask why individuals should not be held to the agreement rather than why they should.
Pre and post-nups are just as relevant to commercial as personal assets.
That’s particularly true – and increasingly relevant – in situations where the joint assets up for consideration on divorce include a family business.
When you take that into account, is it any wonder why you wouldn’t try and safeguard an enterprise which you may have spent many years’ of hard work developing and upon which many employees may rely?
Some people might argue that they’re not terribly romantic and represent a dampening of emotions which brought a couple to marry in the first place.
However, that view overlooks the considerable role which they play in insulating companies from the potential blowback of a divorce.
They determine what can be included or excluded during considerations about a settlement and so provide an element of certainty in divorce proceedings.
Only in recent days, we have seen the very real value of a pre-nup.
Kirsty Bertarelli, a former beauty queen and writer of the hit song ‘Black Coffee’ by the pop band All Saints, has agreed a divorce settlement with her husband, Ernesto.
Mr Bertarelli’s share of a family pharmaceuticals business was reportedly worth £9.2 billion.
Nevertheless, the financial details of their split were dealt with according to a pre-nuptial agreement in place before their marriage in Switzerland. Therefore, Mrs Bertarelli walked away with cash and properties worth an estimated £400 million (https://www.thetimes.co.uk/article/dd5314ac-27a3-11ec-8024-639cd6774533?shareToken=12a3d4e1b9940d802220b6d641e61975) – still a record pay-out for a British-born divorcee.
The starting point for a divorce settlement is an equal split of a couple’s assets, meaning there is a very real sense of jeopardy for any business involved.
In cases featuring less wealth than that amassed by Mr and Mrs Bertarelli, courts can even order companies to be broken up or shares to be transferred between spouses to meet the terms of a settlement.
That is, of course, not commercially advantageous and can hugely impact on operations.
It is not just true for firms started by one or both of the individuals involved in the divorce.
Someone with an interest in a family business (of which there are approximately half a million in the North West, employing more than one million people) or simply owning shares in a company can also be affected.
Among members of the UK’s business community, pre-nups are increasingly regarded as an integral part of corporate planning.
Before a firm is even registered at Companies House, more businessmen and women want to know that the very real possibility of relationship collapse will not put their work in peril.
When it comes to the involvement of private equity investors or succession planning in established family businesses too, the issue of pre and post-nups is a familiar topic for discussion.
The alternative – division, redundancies and even the sale of a company – is, for many entrepreneurs, a fate to be avoided at all costs.