A divorce can be a tough time for anyone, but it can be especially rough on businesses. If your case is dealt with through the court system, a significant business is likely to come under intense scrutiny, as not only its value is judged, but also its performance and its ability to generate cash. Forensic accountants are likely to be involved and the business is likely to play a vital role in the final decision that the courts will make.
If you’re a business owner and are about to go through a divorce, there are a number of things to consider, such as:
Will there be a claim on your business?
How much is your business worth?
Can you release funds to meet any such claim?
Should you be able to, how much tax will you have to pay on this?
What would be the most tax efficient way of meeting the claim?
One of the first things you should do in such an event is ensure both you and your family law solicitor have a very firm grasp on how you can construct your case. It is imperative that you are in a position to dictate the direction of your case rather than simply acting in a reactive manner to either the courts or your spouse. An early meeting between your business accountant and your family law solicitor should always be considered.
Once your family law solicitor understands your business fully, you’ll both be in the best possible position to present your case. Information such as when the business was set up, how and by whom, is important for painting a complete and honest picture of your current business situation – and the contribution you have made to it.
Operational information such as who is involved with the business, its strengths and weaknesses and your plans for the business’ future is also important. The courts will take into account the ability of your business to raise cash to settle claims, but also will not want to prevent the business from trading effectively.
The best time to protect a business from the impact of divorce is before marriage. After marriage, it is important to remember that expert legal advice should be sought before you make any move to protect your business assets. Such moves can be viewed as attempts to unfairly reduce your spouse’s claims – and would be damaging to the success of your own case. Your family law solicitor is best placed to advise on the moves you could and should make. The court has the power to prevent moves that are deemed to be carried out purely for protection against claims.
The following are a few lawful measures that your family law solicitor might recommend to you in order to protect your business during or before a marriage and divorce:
Pre-nuptial agreements are a very good way of protecting your business and its assets. The courts will uphold these agreements as long as they were arrived at fairly at the time – and meet the needs of the “weaker” spouse at the time of divorce. They do still need to be “fair” at the point of divorce, but the fact of the agreement itself will be relevant to that assessment.
Similarly, post nuptial (after marriage) agreements.
Keeping your private wealth clearly separated from your business’ wealth. In particular, assets housed within a limited company will be the property of that company and not subject to direct claim (although your shares in the company could be).
Again in relation to a limited company, ensuring that the articles of the company and any agreement between the shareholders deals with issues such as valuation of shares as between shareholders – and restrictions on to whom shares can be transferred.
When entering a marriage, ensure you have both considered the implications financially of doing so. There could of course be benefits to including your spouse in the business and you can benefit greatly from tax reliefs as a result of such moves. However, in these circumstances, you should consider awarding your spouse a different class of shares, perhaps without voting rights, to ensure that there are no arguments about control of the business. This is a complex area and one where your family law solicitor will work with a commercial colleague to fully advise.
Sharing ownership of the business with wider members of the family before marriage or after marriage with your spouse’s agreement – obviously then reducing the proportion of the business owned by you.
These considerations are key to the protection of your business and should be considered when entering a marriage if possible. It is always better to be prepared, however unlikely a divorce might seem.
Your specialist family law solicitor will be able to expertly guide you through the issues.
This article has been contributed by Paris Smith who are Southampton’s leading divorce lawyers and have gained national acclaim for their services.
Should you have any queries or questions regarding how marriage or divorce could impact your business, get in touch with our specialist family law team today. We’re always more than happy to help you with any issue that you may have, as well as advising you on your rights and your options as a business owner.