IF THE DIRECTORS DIVORCE - CAN THE BUSINESS SURVIVE?

6th October 2020

 

IF THE DIRECTORS DIVORCE - CAN THE BUSINESS SURVIVE?

Businesses are under pressure from both the threat of a no-deal Brexit and the current pandemic

The pressure is amplified when the business owners are husband and wife working in close proximity of each other.

Work stress can translate to stress in the marriage and stress in a marriage can ultimately lead to separation and/or divorce if left unchecked.

Divorce is undeniably a stressful process but it can be more stressful if the assets include a family business and achieving a fair division of the assets can become complex

The court must consider all the assets and liabilities the couple have.

In deciding how the assets should be divided the court can order a valuation of the business as well as order a sale or transfer of company shares

The court will take into consideration factors such as dependent children, the length of the marriage, including periods of pre-marriage cohabitation, how and when the business came into existence, the other shareholders if there are any.

It is essential that when going into a business with a spouse you have a legally prepared shareholders agreement setting out clearly how the shares in the business should be held and by whom

It is unlikely the court will order a sale of the business if there are other shareholders and a sale will impact negatively on them

What are the main factors the court will consider when a family business is involved?

1. Does the business have tangible assets or capital value?

2. Who owns the business?

3. Who runs the business?

4. What income does the business generate?

5. Can capital be withdrawn from the business?

6. Can a loan be obtained secured against the business assets?

7. Can the needs of the couple and their children be met from the business income?

No one goes into marriage thinking it may end in divorce but that doesn’t mean it won’t happen through no direct fault of either spouse

Whilst you cannot protect yourself against divorce you can protect yourself against a disastrous divorce

If you can get the right documentation in place - shareholder agreements, pre-nuptial and post-nuptial agreements

If you are unable to do that or it’s too late for that then make sure you chose the right lawyer to help you unravel the family finances in an amicable and constructive way.

One who has the necessary experience either first hand as a business owner (like me) or through extensive exposure to divorces involving business assets (also like me) as this will help you achieve a creative solution to dividing the matrimonial assets and protecting the future of the business going forward

Sarah Hull 

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