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NEWS - PLANNING
Pre-nuptial law yet to be tested
4/2/2001
Property settlement after a divorce can tear a family business apart, especially if the husband or wife is forced to sell their interest in the business to pay out their spouse.
Pre-nuptial agreements now have legal teeth and could allow a divorced couple to settle their financial affairs without resorting to the courts or selling the family business.
In an amendment to the Family Law Act that came into effect on December 27, pre-nuptial agreements became enforceable.
The amendment makes provision for financial agreements between a husband and wife either before, during or after a marriage.
If they were in a business partnership or part of a larger family-owned business, the agreement would set out how their interests in the business would be divided if they divorced.
In the past, pre-nuptial agreements were unenforceable, but they were useful to the Family Court as evidence of the value of assets and resources that each party first brought to a relationship.
One of the biggest problems for a family business is that a judge under the Family Law Act has a wide discretion in altering the interest of the parties to the marriage.
There is a delicacy of negotiations for prospective spouses about signing such an agreement, given that a proposal of marriage would have to be sealed by a legally binding document setting out the terms of property settlement should the marriage fail.
One way of doing this would be to make it a term of a family business constitution that any members of the family who get married are required to enter into a financial agreement with their prospective spouse.
However, these financial agreements were yet to be tested in the courts. It is still too early to say what effect financial agreements will have in family law until there has been some guidance from the Family Court.
The new laws will hopefully allow financial agreements to be manageable so that family businesses can feel more secure. One of the things which haunt family businesses is a divorce by a sibling, where they may have to sell the business or find the money out of the business to pay out the spouse.
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