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Law for Business

Knowhow - guidance - precedents

08 NOV 2012

Divorce and the family business beneficial changes in the law

The high-profile divorce case of Radmacher v Granatino has important connotations for family businesses including farming enterprises. It offers a new solution to preventing business assets being lost to the family through divorce.

Divorce has for centuries, proved a cause for concern amongst owner-managers. Adult children, however loyal and dedicated to the business they may be, could marry partners who, on divorce, end up walking away with a large share of a family business through their divorce settlement.

Prior to Radmacher v Granatino, pre-nuptial contracts had limited impact on divorce settlements, with Family Courts relying on the principle that marital assets should be divided equally between the couple. However, the case has changed all of that for the better for the family business owner.

The case involved Katrin Radmacher and Nicolas Granatino who married in 1998; Ms Radmacher (a German national) ran a boutique in London and Mr Granatino (a French national) worked for JP Morgan where, at the height of his career, his income was £325,000 per year. The parties and their children lived in London. They had signed a pre-nuptial agreement in Germany where such agreements are legally binding. This agreement provided that neither party was to benefit from the property of the other on any subsequent divorce.

Before and during their marriage, Ms Radmacher had inherited a fortune of over £100 million from her family's paper company in Germany whereas Mr Granatino, on his own initiative, had left his work in the city and had embarked on research studies at Oxford. The couple had two children during their marriage.

Pre-nuptial agreements

In their judgment, the Supreme Court found that Mr Granatino should be held to the terms of the pre-nuptial agreement, subject to making provision for the needs of the children. The Court emphasized that the key to any financial settlement is fairness.

To be binding, the parties must enter into the contract voluntarily, in advance of the wedding and must each make full financial disclosure and have independent legal advice. Subject to meeting all the criteria, the Court will only disregard a pre-nuptial agreement, if in the circumstances it would be unfair to hold the parties to it.

As a result, while not absolutely binding on the Courts, pre-nuptial agreements will now be given decisive weight by the Courts.

Post-nuptial agreements

The door has also opened, following another recent case of MacLeod v MacLeod, for couples who are already married to regulate the division of assets and income on divorce, during marriage, through post-nuptial agreements. These are becoming increasingly popular ways of regulating asset division amongst couples who are already married.

Accordingly, the outcome of these two cases provides new solutions to owner-managers who wish to pass business shares or indeed land on to their adult children, with the reduced risk of those shares being lost to the family and the business in the event of their children's ultimate divorce.

If you would like more information, our specialist Family Lawyers within our Family Business Team can provide expert advice and support in this area, including the drafting of tailor-made pre and postnuptial agreements.

For further information, please contact Sally Rushton, Senior Associate at Veale Wasbrough Vizards on 0117 314 5329 or at srushton@vwv.co.uk.

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