Personal Finance

Prenups hedge businesses against risks of divorce suits

Divorce DECREE
Divorce cases can take toll on business performance. PHOTO | FOTOSEARCH 

Matrimonial property is one of the main contentions for separating couples second to child custody.

Issues to do with matrimonial property usually take the centre stage in high profile divorce cases.

Matrimonial property is defined in the Matrimonial Property Act and includes matrimonial homes, household goods and any assets acquired during the marriage.

This definition is very wide and in my view, it includes all property that is acquired by the couple when they are married.

There are certain exceptions to the definition of matrimonial property including assets held in trust for others.

However, looking at the definition of matrimonial property then intangible property such as shares and even intellectual property would fall here.

There is, therefore, a great need to plan for your matrimonial property to ensure it does not form a contentious issue as the couple goes into marriage. Take the example where one spouse invents something during their marriage and is awarded a patent, which when commercialised is worth billions of shillings.

During divorce or separation proceedings would the other spouse be entitled to a share of this? In most parts of the US intellectual property has been considered to form part of matrimonial property such that a singer’s royalties can form part of the matrimonial property.

The definition of what matrimonial property is important because, in the event of a divorce, it will be subject to division or splitting as the court decides.

Before the enactment of the Matrimonial Property Act in 2013, prenups were not common in Kenya. Even after the passing of this Act, prenups are rare in Kenya. Most people do not know that the law recognises prenups now.

Section 6 of the Matrimonial Property Act allows couples to enter into written arrangements concerning matrimonial property before they enter marriage.

The prenup will take precedence over other principles of settling matrimonial property, in the event of a divorce or separation.

Prenups have several advantages due to various reasons. One is that they provide a mechanism for couples to protect their separate property. Some assets are acquired without any assistance of the other spouse, for example, intellectual property and, therefore, one party may desire for it to fall outside the definition of matrimonial property and not be subject to divorce proceedings.

Prenups protect third parties who have an interest in the matrimonial property from the drastic effects of divorce.

For example, a company’s management would be badly affected in the event that its shares fell subject to a matrimonial property dispute.

This happened in a leading divorce case in Kenya where the company’s shares became part of divorce proceedings.

The company performance went down and other third parties were affected by the long divorce proceedings. Prenups can hedge this risk. They preserve the value of a property and also forms a hedge against property devaluation in the event of divorce proceedings.

Prenups ensure the divorce proceedings are fast and neat. There is less conflict because there is little likelihood for any of the spouses to use the matrimonial property as a revenge weapon against the other.

Prenups are advisable before entering into marriage if there is a sense of risk in the marriage, or where there is need to protect important assets in the event of a divorce.

However, prenups have also been known to bring about a lot of tension in a marriage and they seem to imply that the couple has trust issues with each other.