Divorce & your business - The three most important stages

How does divorce impact my business?

Investments may need to be cashed in to fund a settlement in the event of a divorce.  Even separate property can end up being divided or transferred.

For many spouses, protecting your business will be crucial.  The business assets may form the larger part of the marital property; sometimes both spouses have a share in the business or have other business partners whose interests must also be taken into account in the event of a divorce.   Prompt advice from experienced family lawyers may be vital in protecting ownership of the business. 

We have a large team of experienced family lawyers well used to dealing with business assets as part of a divorce.  Whether you are interested in protecting your share of the business in advance of a wedding, or looking to see how the value of it can be factored into a divorce settlement, we would be very happy to consider the situation with you and advise you on how best to achieve your objectives. Call us on 01206 217 349

The three most important stages of dealing with a family business during the divorce process are as follows:-

1.     Establishing the ambitions of both spouses

A family business may have been built up over many years and it is very normal for everyone to feel very attached to it.  However, its not always the case that both spouses want to continue with the business and establishing what everyone wants at an early stage prevents there being costly arguments about purely theoretical outcomes.  

If only one spouse wants to stay involved in the business then the focus of the discussions can shift to how the other can obtain fair value from their share.  It's not uncommon for a divorcing couple to continue to run their family business together.  Whilst that might seem impossible to some, others find that they can continue to have a very good and profitable commercial relationship even if the personal relationship is agreed to be over.  Both types of cases can be accommodated within a divorce settlement.

2.     Calculating the value of the share of the business

If one spouse is going to keep the business and the other is going to be bought out, then it’s vital to establish a fair value.  If the business is substantial then the court will usually order an independent forensic accountant to act as a ‘single joint expert’. 

 A report on value will take into account matters such as the sector the business operates in, historical financial results, the current balance sheet and profit and loss account and other financial data such as the history of dividends and level of borrowing that the business has.  

If the business is modest in size then it may be that the family accountant can provide useful information about values.  It is important to factor in whether there are taxation implications of a sale or transfer of business assets and this is an area where specialist advice is usually going to be required. 

3.     Determining whether the business has any liquidity

Again this is something that an expert accountant can advise on.  It can be difficult to extract liquidity from a family business and in those circumstances it is not unusual to set off other assets against it.  

How much money can actually be taken out of the business and how such extraction is structured can form a fundamental part of a divorce settlement.  

Often though, the only way to raise money is to borrow or sell assets (particularly land assets).  It used to be acknowledged wisdom that the divorce court would not ‘kill the goose that lays the golden eggs’ but that notion has long ago been displaced by a much more pragmatic approach.  It is clear and decided law that a judge will order the sale of a business if that is the only way of seeing fairness done between spouses in a divorce situation. 

 

These three steps equally apply where either husband or wife owns a share of a business with another person(s).  This time though the other business owners may need to be involved and clearly will want to protect the overall value of the business for their and their family’s own benefit.  Again, this is something which as experienced family lawyers we are used to encountering and dealing with but the solutions may often need to be creative. 

It is important to realise that even if a business has come down through one side of the marriage – and possibly for a number of generations – that is not going to prevent a court from using it to fund a divorce settlement if the needs of the other spouse are such that they can only be met in that way.  

Extra caution is required where a non-owning spouse has devoted time and effort to the family business.  The divorce courts are very ready to recognise and reward such efforts on divorce. 

In order to protect a family business, the use of prenuptial agreements is becoming more and more common.  They can be particularly important where other members of the family are already involved before a marriage takes place.  Such an agreement can look forward and set out what the desired outcome would be should the marriage fail.  In that way the overall business can be protected whilst the non-owning spouse can still be treated fairly.  

It may seem a little unromantic to be considering such matters prior to a wedding but our experience is that a properly drafted prenuptial agreement can take considerable pressure off both a married couple and their wider families when it comes to the ownership of the business.  It is possible to draw up a postnuptial agreement after the wedding but these are far less common. 

 

We have a large team of experienced family lawyers well used to dealing with business assets as part of a divorce.  Call us on 01206 217 349

 

 

  • Debbie Butterfield
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  • Sue Catterwell
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  • Marina Iskra
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