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How to protect your business during divorce

Divorce is a difficult process at the best of times, but matters can become even more complicated when one or both partners run a business.

The Family Business Research Foundation’s most recent State of the Nation report reveals that there are more than five million family-run businesses in the UK.

Dealing with a family business during the divorce process often raises many complex issues, starting with its valuation, inheritance wishes, financial contributions, dividend payments, and the shares or interests of other family members.

Many business owners do not realise that their ex-spouse may be entitled to some share in the company, even if they have never been involved in the day-to-day activities of the business.

Divorce can be bad for business

In the UK, for the court to consider a “fair” division of all your assets, the starting point is that all of the assets will be valued and taking into account as part of the ‘pot’ for distribution.

Arguments may often be made by one or both parties to the divorce about what is classed as ‘matrimonial property’, which should be shared, and ‘non matrimonial property’, which perhaps should not be shared, but in the majority of cases the Courts will not make such a distinction where to do so would mean that the needs of the parties and any children will not be met.

The family court will hope to protect a family business from becoming too involved in a divorce, to avoid the business having to be broken up or sold off to realise enough to pay the court determined settlement.

One partner may have to buy out the other if they have a share in the company or liquidate assets to achieve the same outcome.

These options can be messy and time-consuming, and often negatively impact the performance of the company.

Many businesses don’t have the spare capital or assets to liquidate that could help achieve a clean break.

The resultant pressure to sell will typically signal the end of the business, which can be considered by the courts.

Furthermore, it is not uncommon for newly divorced partners to have to work together until the business can be sold, which brings a whole new set of challenges.

Employment law issues often come into play and it is advisable that divorcing couples, who also have an employer-employee relationship with one another or with the business at the heart of the dispute, seek legal advice from a specialist employment lawyer in order to avoid potential claims for unfair or constructive dismissal, redundancy or some form of discrimination.

Protect your business from divorce

The first step to protecting your family business begins before you tie the knot.

Pre-nuptial agreements may not be very romantic, but they are essential for any couple involved in running a business.

In the agreement, you can set out what would happen to your business if you divorced.

This can include how you would handle the selling or buying of shares in the business, and any safeguards to ensure that the breakdown of your marriage doesn’t negatively affect the success of your business.

You should consider how you would best protect the future of the business, its reputation, any employees and investors, and clients or customers.

If only one of you owns the business, the pre-nuptial agreement can also establish whether the other spouse will be entitled to any of the assets in the event of a divorce.

If both of you are involved in the business, you should also prepare Shareholders Agreement to set out formally how you are going to run the business to help avoid disputes.

You can also include a clear process for resolving any disputes that may arise, which can help to mitigate conflict and ensure the continued success of the business in the future.

Protect your business during divorce with Mander Hadley

No one gets married expecting the relationship to break down, but it is useful to think about what would happen if it did.

Preparing in advance will ensure a more amicable divorce, with everyone aware of what’s at stake, and will also help you to protect your business.

At Mander Hadley, our friendly and knowledgeable team of Family Law experts can help you prepare a pre-nuptial agreement, giving you peace of mind that your business assets are protected should the relationship break down.

If you divorce without a pre-nuptial agreement in place, we’ll adopt a conciliatory and methodical approach to guide you through each stage of the negotiation process.

Whilst we encourage couples to keep communication open, we understand that this may not always be possible, and we can recommend an independent and professionally trained mediator to help you engage in focused negotiation to reach a settlement.

However, should court proceedings become necessary, we will guide you through each stage and ensure you are fully represented to achieve the best outcome and peace of mind.

Divorce can be bad for business. Contact our family law team today to protect your commercial assets.

Stuart Daniel

Director – Head of Family Department

I qualified as a Solicitor in 2006 and now specialise in divorce, financial settlements, childcare arrangements and Pre Nuptial Agreements. I have many years’ experience as a private family lawyer having worked with two other local firms before returning to Mander Hadley, where I first undertook work experience during my university studies.