This is why all family businesses need a marital contract in place

It doesn’t take much effort to realise that Yorkshire has some of the most entrepreneurial families in the country.

According to figures published by the House of Commons';; Library, there were 414,000 active businesses in Yorkshire and Humber last year. To put that in some form of context, it is exactly twice the total number of firms in the whole of Wales.

The vast majority (413,000) of Yorkshire’s commercial community is founded on small or medium-sized enterprises (SMEs).

If we look a little deeper, we can see that most of those (374,381), in turn, are family businesses.

Even though the lion’s share of those would be regarded as micro-enterprises with fewer than 10 staff, they still account for just over half of all Yorkshire’s private sector employment.

If any evidence was really needed, we also know that Yorkshire business folk are not just dynamic but resilient. The reduction in the number of businesses in the region during the course of the pandemic was 2.1 per cent - one-third of the national figure.

Given all that, it might come as a surprise to learn that the greatest threat to commercial prospects is not the parlous state of the broader economy but something very much closer to home. Quite literally at home, in fact.

As a divorce lawyer, I have to maintain a close interest in family businesses. Over the course of my career, they have featured ever more frequently in discussions between husbands and wives about how they divide their assets when their marriages come to an end.

In many cases, a business which may have been founded by one or both husbands and wives represents the most valuable single asset.

However, companies cannot simply trade through a divorce, especially when the process takes more than a year on average to conclude.

Even if businesses were the brainchild of one spouse who then invested much of the energy needed to get it off the ground, they might have employed their other half as a tax-saving measure. They might have divided the company’s shareholding or even put respective

family members on the payroll.

Marital collapse can also have severe consequences for those not living under the same roof, including staff, suppliers and investors.

Yet there is a relatively straightforward and increasingly popular way of limiting the potential commercial damage for companies in the event of divorce. Marital contracts - pre-nuptial and post-nuptial agreements - are essentially as useful to those already with or thinking of setting up a business as corporate insurance.

They determine what can be included or excluded during considerations about a settlement and so provide an element of certainty in divorce proceedings.

Given that the starting point for a divorce settlement is an equal split of a couple’s assets, there is a very real sense of jeopardy. This means that courts can order companies to be broken up or shares to be transferred between spouses or sold. Such considerations are not abstract. One-fifth of marriages in England and Wales end in divorce within 10 years of couples exchanging vows.

Yet I’m regularly struck by how many family business owners in Yorkshire and further afield don’t contemplate nuptial agreements until they’re in the midst of a costly divorce. No-one knows how long a company or a marriage will last. In such a challenging economic

climate and with so many relationships sadly destined to end in divorce, losing a partner shouldn’t mean having to lose your business too.

Laura Guillon, Partner and Head of Hall Brown Family Law’s Leeds office.