What Are My Rights Regarding Family Business & Divorce?     

Oct 18, 2018   ·   4 minute read
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As a divorce solicitor specialising in resolving financial settlements, I spend a lot of time looking at business assets within financial court proceedings when it comes to family business and divorce. Many people assume that if they split up from their spouse that their business assets are ring fenced and won’t form part of the financial settlement. That isn’t the case. As part of the divorce proceedings the court can order the valuation of a business and order the sale or transfer of company shares, or it can force the company to come up with money to fund a settlement. It is therefore important to get specialist advice from a Manchester divorce solicitor on business assets within divorce proceedings.

Tips for family business and divorce:

  • Assign a correct value to the entire family business on divorce. Should the business value be net assets, and if so, are the assets valued correctly in the business accounts? Or should the valuation be a multiple of profit, in which case is the profit over or under-stated in the accounts, and what is the correct multiple? Should the opinion of the business’s accountants be relied upon, or does an independent accountant need to be brought in;
  • Find out how to assess the value of a spouse’s shares in the family business on divorce. This is particularly difficult if they are a minority shareholder, or where other family members hold the other shares;
  • A spouse who was a ‘sleeping partner’ in the business during the marriage, in order to maximise tax advantages, may suddenly ‘wake up’ on divorce and attempt to interfere with the running of the company, or challenge past transactions;
  • Where a spouse is also an employee of the family business the spouse has rights and claims as an employee, as well as potential spousal maintenance claims;
  • Any dispute between spouses over a family business tends to unsettle the other directors, shareholders and employees of the business, and could even destroy the business itself;
  • What is the right solution to the spouse’s claims against the business? Should they get shares, or cash? If cash is preferred, how can it be released from the family business on divorce (there are many ways) and the tax treatment of each method needs to be weighed up.

You might also be interested in

Family Business Protection and Divorce 

When a husband and wife agree to separate but want to continue to operate the family business together, it is vital that this agreement is properly documented to avoid disputes and to minimise the risk of a future falling out. Protection can be in the form of written employment contracts, a shareholder agreement and a family financial court order. These documents provide checks and balances, such as recording the agreed policy on declaring dividends or the policy on employing new staff ensuring both spouses have legal protection. With these documents in place, many spouses are able to successfully work together even if they can’t continue to live together.

Prenuptial Agreements and Protecting the Family Business on Divorce  

As a Manchester divorce solicitor, I am often consulted by business owners where they (or one of the other shareholders) are getting married, and they want to protect the business from the kind of risk and uncertainty which any divorce would create. A prenuptial (or postnuptial agreement if a couple are already married ) can sometimes be the perfect solution, as prenuptial and postnuptial agreements can potentially ring-fence the business completely from claims on divorce, or if this is not possible, the prenuptial agreement or postnuptial agreement can have a number of provisions which protect the family business on divorce.

When it comes to the business of divorce it pays to get the right help from a qualified and experienced divorce solicitors like Evolve Family Law.