Prenuptial agreements: A sign of practicality, not a lack of love

A steadily increasing number of couples choose to enter into pre- and post-nuptial agreements in order to safeguard assets in the event of marriage breakdown. These conversations and agreements don’t signify the loss of love; rather, they reflect practicality and foresight for those who understand the risks and consequences involved.

A nuptial agreement is a legal contract that couples enter into with the aim of recording how financial matters will be handled in the event of divorce or dissolution of the marriage, providing them with clarity and helping to avoid disagreements should the relationship fail. Therefore why in the UK, do approximately 89% of married or civil-partnered couples not have a prenuptial agreement in place? This may be due to a belief in the stability of a relationship, but sometimes its because the conversation may be seen as unromantic and create unnecessary tension. We encourage couples to have these discussions early on, to avoid the financial uncertainty in the event of divorce or dissolution.

Although often seen as a tool for celebrities and the ultra-wealthy, prenuptial agreements can also safeguard pre-marital assets – especially relevant for those who marry later in life, as well as inherited wealth. This is why many parents encourage them and sometimes even cover the costs.

What is the difference between a pre-nuptial and post-nuptial agreement?

The difference is in the timing of when the agreement is made. A pre-nuptial agreement is made before the marriage, a post-nuptial agreement is made once the couple are married.

Nuptial agreements usually deal with the following:

Protecting pre-marital wealth, savings and investment and inherited assets
How assets will be divided upon divorce
How assets will be treated during the marriage
How income will be treated during the marriage
Protect business or trust assets
Record whether either party will receive any maintenance from the other, and if so, for how long

Why should I get a nuptial agreement?

If you are planning on getting married or entering into a civil partnership and would like certainty as to how you and your partner wish your finances, property and assets to be divided in case of divorce or dissolution, you should consider a pre-nuptial agreement. If you are already married or in a civil partnership, a post-nuptial agreement can help achieve this. At Wedlake Bell, we are regularly instructed to prepare nuptial agreements for a range of clients, from professionals working in the City of London to those who wishing to safeguard inherited assets, and our expert team can help tailor them to your specific needs. Some recent examples of how we have helped clients achieve their objectives include:

Ringfencing a substantial investment portfolio acquired prior to the marriage and income derived from it
Protecting a client’s technology company founded prior to the marriage
Advising clients on both pre- and post-nuptial agreements to protect contributions to the purchase of property, particularly where one party’s contribution has been substantial

Are nuptial agreements binding?

For a nuptial agreement to stand the best chance of being upheld, certain formalities have to be followed, namely that the agreement is fair, that each party has had independent legal advice and provided financial disclosure, that no undue pressure has been exerted on either party, and in the case of pre-nuptial agreement, that it is signed at least 28 days prior to the wedding.

Despite their growing acceptance, nuptial agreements are still subject to scrutiny by the courts, which is why it is important they are executed following the formalities outlined above. Whilst they are not automatically enforceable, the legal framework in England and Wales has evolved to give them greater weight provided they are entered into freely and fairly. Nevertheless, growing numbers of couples are choosing to enter into these agreements to regulate their financial affairs in the event of relationship breakdown in order to avoid litigation which can be potentially emotionally and financially costly.

How Wedlake Bell can help

Wedlake Bell has extensive experience in preparing and advising on prenuptial agreements. We can ensure the situation is handled politely and collegiately, to ensure love is not lost during the process. If you think a nuptial agreement would be helpful in safeguarding your interests, or you would like any further information about how they work please contact Andrew Miles or another member of the Family team.

Andrew is a Solicitor in the Family Law team at Wedlake Bell in the City of London. The team are experts at advising clients in relation to nuptial agreements, as well as all other family law related matters.

Part 1 – Business of Succession: Success and employment law strategies when selling a business

Employment partner Stephen Ravenscroft has seen his fair share of complexities when it comes to business succession. As part of a series of conversations with partners at Wedlake Bell, where we explore succession from both personal and corporate perspectives, Steve shares his expertise on the employment law aspects that founders need to consider when taking investment or selling up. From the importance of having proper employment contracts to navigating the complexities of TUPE transfers and equity arrangements, this discussion provides valuable guidance for founders at various stages of their business journey. Join us as we uncover the critical factors that can influence a founder’s success and the strategies to protect their interests in the ever-evolving business landscape.

Steve, how can a founder be best prepared for a business sale or investment? Can you tell us what employment issues may arise and what a founder should be mindful of in those circumstances?

It really depends upon the nature of the business and the nature of the transaction that the founder is considering. Is it a very early stage investment or is this a means to an exit in the founder’s mind? There will be different factors from an employment law perspective depending upon some of those issues, the size of the business, the sector and so on. Certainly if you’re thinking about an early stage of investment, maybe it’s a tech startup that’s done tremendously well very quickly, the founder might not even have their own employment contract in place. We have certainly seen that from time to time. As a rule, any investor will want to know going forward that the founder and other key members of senior management have proper employment contracts containing customary terms to protect the business, including notice and garden leave provisions, confidentiality and IP obligations and restrictive covenants.

So it’s likely that the founder will be presented with a new employment contract (sometimes called an executive service agreement) on which they will need to take legal advice.

If the transaction is structured in a way that results in a transfer of assets, then that could trigger a TUPE transfer (which protects an employee’s terms and conditions of employment) and this might be something totally new for the founder and for the founder’s colleagues. That may well require the founder and other senior managers to enter into settlement agreements too. And that would particularly be the case if, for example, their current employment arrangements are being replaced by new employment arrangements going forward.

So once again, that will be the type of document that the founder would need to take legal advice on. In fact, it is a condition for a settlement agreement to be binding and enforceable that the employee has taken independent legal advice on its terms and effect. So, they’re the types of issues that the founder might need to think about purely from an employment perspective about their own situation.

But then, more widely, they’ll need to be thinking about their HR structures across the business. Are they going to be fit for purpose for the growth that’s expected if it’s an early stage investment? Or are they already fit for purpose to make it attractive for a buyer if it’s a full exit? And so, it could be important for the founder and for the founder’s team to conduct an audit all of their HR structures currently in place. And that will include things like clear job titles and roles, accurate job descriptions, appropriate policies and procedures, well-maintained payroll records, appropriate remuneration and incentive strategy, effectively all of the HR hygiene that you would want to see in a developed business.

Straying slightly out of the strict employment sphere, the founder will of coursed need to agree arrangements around their equity and what’s going to happen to it. If it’s a sale, are they going to receive their full consideration up front, or will some of this be deferred dependent upon future performance of the business? If it’s an early stage investment where they’re continuing to remain an important shareholder within the business, what class of shares are they going to hold? Will they hold different classes of shares? What are the terms attached to those shares? There’s likely to be a sale and purchase agreement (SPA), a shareholders agreement (SHA) and/or an investment agreement (IA) depending upon the nature of the transaction. And amongst all the other commercial and corporate items that they’ll need to be advised upon there, there’ll probably be provisions around what happens to their equity on departure, and this may be dependent upon the reason for their departure.

That’s when you often hear people talking about “good leaver” and “bad leaver” clauses, definitions of termination without “Cause” or termination for “Cause”, and so on.

Tell us more about this idea of good leaver, bad leaver? Does that tie in to potential forced exits? What could you do to protect yourself if it’s looking like you’re going down that bad leaver route?

Yes, the important thing is for the founder to be really on the ball when negotiating these terms in the transactional documents, so that they are fully aware of the potential outcomes further down the line.

An investor/buyer will often want to define good leaver provisions in a very narrow way. So for example, they may say a “good leaver” is somebody whose employment ends due to death, serious disability or ill health, retirement or redundancy (often with some discretion built in for the investor for other unforeseen circumstances). And in all other circumstances, the departing shareholder is deemed a “bad leaver”.

Whereas, it makes a lot more sense for a founder to negotiate the specific areas where they would be deemed to be a “bad leaver” and provide that in all other circumstances they would be deemed to be a “good leaver”. “Bad leaver” reasons often include voluntary resignation and any kind of summary termination for misconduct, gross misconduct or gross negligence. Sometimes the summary termination reasons are given a separate definition of “Cause”.

What is a forced exit and why do they happen?

If it’s a forced exit, that is to say a unilateral decision that the founder has to leave, that most commonly arises in two types of situations.

The first is where the business is not performing to the satisfaction of the investor and they feel that they need a new CEO, a new management team, new leadership in place. And the second is where there’s a fallout between the founder and the investor. Sometimes both of these situations apply, but not always.

So, what can a founder do to protect themselves in those situations? Well, taking the first of those, clearly performance is subject to all sorts of factors, and some of them may be totally out of the control of the founder. But what they can control and influence are the human aspects of the business.

So, making sure that they have the right people in place who understand their roles and are incentivized to perform to the best of their ability is key. And there could be a variety of things that facilitate this, such as making sure there are clear job descriptions in place, people understand what their role is and they have clear business objectives and targets, both individually and collectively. That way everybody knows what they are striving for.

And on the incentivization piece, something that is performance-related, whether that’s connected to individual and/or company performance, will be essential. We often see that, in most cases, a successful founder will take key personnel with them on their journey and that might mean sharing some of the equity, ensuring that the really key people are suitably incentivized to make the business a success for everybody’s benefit.

It’s a bit trickier when you’re talking about a founder falling out with an investor. There could be a variety of reasons for that too, whether that is conduct or performance related or otherwise.

Ultimately, in those circumstances, it’s probably going to be necessary for the founder and the investor to seek some kind of alternative dispute resolution as it is very rarely in either party’s interest to go to court. Either a mediation or arbitration or some kind of negotiated settlement around how their employment and their shareholding will be treated on exit is most often preferable to litigation.

Find part two here.

What does it mean to be a responsible steward of wealth?

Wealth holders have always been stewards of their own wealth; increasingly that stewardship requires wealth holders to act responsibly. But what does being a responsible wealth steward mean, and who is this responsibility to, and why does it matter?

The “why does it matter” question can be answered by focussing on three distinct themes. The first focuses on the issues that have shaped the global economy since the financial crisis of 2008, including the publication of the Panama and Paradise Papers which fuelled a sense of distrust between rich and poor, leading to a societal shift in the perception of wealth and expectations of the wealthy. The Covid-19 pandemic only served as a catalyst to this shift, with the economic effects of the pandemic being felt most greatly at the lower end of the wealth spectrum. The second is to recognise that, environmentally, the world is in crisis, with climate change and biodiversity loss and the need for government and businesses alike to pivot to more sustainable practices for the sake of the future of the planet. The third acknowledges the generational shift in perceptions of wealth, with younger generations often grappling to find purpose when faced with financial wealth they have not helped to create and more sensitive to the plight of the less advantaged and the environment.

Consequently, wealth holders are increasingly viewing or expected to view their wealth by others around them through a different lens, appreciating that as wealth holders they have a responsibility to invest and distribute wealth in a way that looks to redress the economic balance and encourage more sustainable practices. This can have the corollary effect of bridging the generational gap and giving a renewed sense of purpose to the rising generations of family wealth. The sense of responsibility is a personal one and may derive from internal family pressures or external factors such as, for example, public sentiment towards a wealth holder or businesses in more traditional sectors where sustainability remains to be embedded.

Conversely, being a responsible wealth steward may not be an active decision taken by a wealth holder. The acronym “ESG” cannot have escaped the reader’s attention, and this denotes social, environmental and governance metrics which the majority of companies now measure their performance against, and consequently even the most individualistic of wealth holders are likely to be exhibiting some form of responsible behaviours, albeit indirectly, through their investments.

More active stewardship practices focus on wealth redistribution and donating excess wealth, often through impact investing (which may be at the risk of low or negative financial return), actively avoiding tax minimisation practices or taking steps to realise more tax, donor-advised philanthropy, or a combination of all or any of these practices.

The starting point in determining a responsible wealth stewardship strategy will often centre on identifying a shared family purpose, values and priorities, which will form the basis of investment decisions and appropriate mechanisms to be incorporated into trusts (and other wealth holding structures), Wills and powers of attorney for family members.

In future editions of Globally Speaking, we will focus on what it means to be a responsible wealth steward in practice and how we work with clients to help them fulfil their roles as responsible wealth stewards.