What can be done to protect the assets of family businesses during divorce?

The latest official figures suggest that 86 per cent of all UK businesses are family-owned, while the divorce rate is currently around 42 per cent.

With such large numbers, it’s sadly inevitable that the two matters are going to collide on a regular basis.

The assets of family businesses, which are often built up over many decades and generations, can be held in a variety of different ways, including within companies and partnerships, but no matter what the circumstances, there is no automatic protection available for such assets in divorce situations.

And while no-one enters into a marriage expecting it to fail, it is essential to take steps in advance which protect the assets of your family business if things do go wrong, as the consequences of not doing so for its financial performance - or even its future viability - could be very serious.

Case law allows for a close examination of any assets that may appear to have been moved into a corporate structure as a way of mitigating financial claims in a divorce, and if warranted, the court can order that they are transferred back into private hands and so considered as part of any settlement.

There are a number of protective measures that can be put in place, and it’s essential for family business owners to take qualified advice on what the most appropriate options for their particular situation might be.

Family Investment Companies (FICs) can be used for wealth and succession planning, and can offer some protection in divorce situations for business founders or owners by including clauses on the transfer of shares to outside parties.

Putting pre- and/or post-nuptial agreements in place should be a standard requirement for anyone with an interest in a family business, while dividend and income distribution should be organised so that they do not fall into a pattern of regular payments to a particular person that could be treated as a financial resource in any future divorce situation.

Pre- and post-nuptial agreements are, in general, useful for protecting current and future assets/income if drafted properly, while partnership and shareholder agreements and other such company documentation should be regularly reviewed and adapted to reflect the requirements of the signatories.

Any acquisitions made by a company or partnership also need to be structured and documented in a way that clearly shows that they are not just personal assets being held in trust for a husband or wife.
Your personal and corporate advisors should be working together to ensure that all your different priorities are properly addressed, and that the assets of your family business are protected in the most appropriate ways.

For further information on options for protecting family business assets, please contact Christian Butler.