Jen, the majority shareholder in a growing start-up, faced concerns from her investors about the potential impact of her marriage on the company. They were clear: any future claim by her fiancé Rob on her shares could jeopardize their confidence, halt further investment and potentially impact the viability of the business.
To address these concerns Jen proposed a prenup agreement. Rob understood the investors’ position and worked with Jen and their respective solicitors to create a fair arrangement. The prenup agreement ensured that Rob could not claim any of Jen’s shares while providing for equitable financial support in case of divorce. This approach reassured the investors and safeguarded their relationship, balancing business priorities with mutual fairness.
Commentary:
In this case, Jen’s investors were concerned that if Rob and Jen divorced, Rob could potentially claim some or all of Jen’s shares in the company. Since Rob was not involved in the business and Jen’s shareholding was a key incentive for her to grow and scale the company, such an outcome could have significantly undermined the business’s future.
A prenup agreement can effectively address this type of concern by clearly designating company shares as separate from marital assets. This ensures that the shares remain protected and are not subject to division in the event of a divorce.
However, it is essential to ensure that the prenup agreement balances the need to protect business interests with fair provisions for the other partner. If, at the time of a divorce, Jen’s income from the business forms the primary or sole source of the couple’s finances, the court may view the exclusion of the shares as unfair, particularly if it would leave Rob without sufficient financial support.
To mitigate this risk, the prenup agreement should include provisions that, while maintaining the shares as separate assets, provide for reasonable financial maintenance. For example, it can specify that Rob would be entitled to maintenance payments from Jen’s salary or dividends derived from the shares, rather than any claim to the shares themselves. This approach balances fairness and financial security for both parties while protecting the long-term viability of the business.