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Protecting a business on divorce

01 Mar 2019

The repercussions for a divorcing couple, who run a business together can be far reaching. The outcome often depends on the type of business. If the business has assets, the first step is to carry out a valuation and explore whether it is possible for the one party to retain the business and compensate the other spouse with a greater share of other assets. Many couples prefer this, especially if one spouse has had very little to do with the business. If there are insufficient non-business assets to give to the other spouse, look at whether there is capital in the business which can be extracted, without damaging the viability of the business. If there are not many assets, a valuation is probably unnecessary as the spouse can benefit from the business by sharing the income and receiving maintenance instead.

You will be requested to produce the last two years accounts and details of past and projected income but it is also wise to prepare further information so that your spouses’ lawyer and the court (if necessary) can have a better understanding of the business.

Who established the business and when? If well-established before the marriage, without any financial or other contribution from the other spouse, there is a greater chance of arguing that it should be treated differently from the other family assets.

Who else is involved? If there are several people who own the business, the court is less likely to insist on the business, or its assets, being sold because it could unfairly affect the other business owners.

Are there any restrictions in the company’s constitution as to who can hold shares?  If so, it will not be possible for the other spouse to receive shares as part of the settlement.

How is the business performing? Clearly explain if the business may suffer a downturn because of market changes. Your spouses’ lawyer and the court will not know your business sector aswell as you do.

Future plans? Was cash ear-marked for future development? The court may try to avoid disrupting your plans if they are well explained and sound prudent.

Nicola Matthews 2017

How far off is retirement? If you would be retiring in the short to medium term and selling then in any case, your spouse may agree to receive part of the business when it is sold in the future.

If you are currently happily married but want to do what you can to protect your business in the eventuality of divorce, it is wise to keep your business assets separate from your private assets and not involve your spouse in the business. If you inherit a business during the marriage, ask your spouse to sign a post-nuptial agreement to forgo a claim against the business.

Fighting about business assets at court is extremely expensive and time consuming.  Taking expert advice from a specialist family lawyer at the outset is vital to understand where you stand, minimise the damage and avoid court.

Nicola Matthews has 23 years’ experience as a family lawyer, is a Law Society Family Law Advanced Panel in Ancillary Relief [Financial Aspects of Divorce] and Complex Assets, qualified Mediator and Collaborative Lawyer and Secretary of the “North East Region of Resolution”, an association of specialist family lawyers who adopt a firm yet conciliatory approach to family cases.

For further information on any of the above, or how we can help you, please contact Nicola Matthews, or call 0191 232 8345.