Divorce & The Family Business

shareholders agreement

Shareholder Disputes and Divorce

It’s bad enough to separate or divorce but even harder to going through a shareholder dispute as well. Northwest divorce financial settlement solicitors recognise that if you are in business with your husband or wife you may be facing a shareholder dispute in addition to court proceedings over your family law financial settlement. In this article, divorce and financial settlement solicitor, Robin Charrot answers your questions on shareholder disputes with your former partner when you are going through divorce proceedings and trying to reach a financial agreement over how your family assets are divided. For expert Divorce and Financial Settlement advice call our team of specialist divorce lawyers or complete our online enquiry form. Your divorce shareholder dispute questions answered on: Are business assets relevant to divorce proceedings? What happens when spouses are shareholders in a family business? Can a divorced couple agree to continue in business together? Can I ringfence business assets so they aren’t relevant to divorce proceedings? Role of a shareholder agreement in divorce proceedings Valuing a business in a shareholder dispute or divorce proceedings Are business assets relevant to divorce proceedings? Business assets are potentially relevant to divorce proceedings and will need to be disclosed as part of your financial disclosure. That’s the case whatever the length of your marriage. However, when the family court makes a financial court order the family law judge will take a range of factors into account, including your respective needs, the length of your marriage and whether you owned the family business before your marriage. The weight given to these and other factors will depend on your personal and financial circumstances. Business assets are relevant to divorce proceedings if you are a shareholder or a partner in a business or sole trader. The fact that your husband or wife or civil partner has played no role in the business doesn’t mean that the family court won't say that your business is a family asset. Even if the court concludes your business isn’t a family asset, in the divorce proceedings a court can still use the value of a non-family asset in the financial settlement where there is a need to share non-family assets to meet needs. It’s best to not get too tied up into arguing over whether your business is a family asset or not and instead take get some expert help on the likely overall financial settlement and on how the impact of the financial settlement on the business can be minimised. What happens when spouses are shareholders in a family business? If you and your husband or wife are both shareholders in a family business then you need to make sure both corporate and family law is followed. Divorce financial settlement solicitors say family law trumps company or corporate law because even if company law says your husband or wife owns fifty percent of the business, in the divorce financial settlement proceedings the family court has the power to order the sale or transfer of shares. If you are getting divorced and you are in business together it can be particularly tough when you both work in the same environment. It’s best to try and keep business and private stuff separate, if you can, so the business isn’t affected by your separation as it’s unlikely to be in either of your interests for the business to suffer because you are struggling to work together until a financial settlement is reached. If you can't work together, even on a temporary basis, then you need to look at whether one of you working from home or other strategies can help you both remain in the business whilst you sort out the divorce financial settlement. [related_posts] Can a divorced couple agree to continue in business together? A divorcing couple can decide to remain in business together after their divorce. A financial court order should set out post-divorce ownership of the business and a shareholder agreement should be drawn up so there is agreed procedure on important points, such as dividend policies or share voting rights. Can I ringfence business assets so they aren’t relevant to divorce proceedings? You can try to ringfence your business assets so they aren’t relevant to the divorce proceedings by either signing a prenuptial agreement or postnuptial agreement. The weight given to this type of agreement will depend on a variety of factors, including whether there was financial disclosure as part of the prenuptial agreement or postnuptial agreement process. Role of a shareholder agreement in divorce proceedings The fact that you have a shareholder agreement that says your husband or wife must transfer their shares to you for one pound if you separate or divorce doesn’t mean that your spouse won't get a fair financial settlement or even a share in the value of the business assets. However, it is still sensible to have a shareholder agreement but it’s important to understand it won't totally protect you from business related financial claims on divorce. Valuing a business in a shareholder dispute or divorce proceedings Valuing a business in a shareholder dispute or financial settlement divorce proceedings normally involves a valuation by a forensic accountant so there is an accurate assessment of the share value, the net value after tax, and the potential income stream if you continue to hold shares in the business. The fact that a family court orders a valuation doesn’t mean that the court will order that the shares are sold but the court will want to know the net value of the shares so the court has an idea of the total extent of the family assets and any non-family assets. The court can then use that information to make a financial court order, after having weighed up all the statutory factors to reach what the court considers is a fair financial settlement. For expert Divorce and Financial Settlement advice call our team of specialist divorce lawyers or complete our online enquiry form.
Robin Charrot
Mar 03, 2022   ·   6 minute read
little girl with lamb on the farm. She sits by the fence and hugs the lamb.

Divorce and the Family Farm

A divorce can be traumatic but when a divorce occurs in a farming family, it can be particularly tough when the farm is not only the family business but also the family home. In my experience as a family finance and divorce solicitor in Whitefield and Cheshire it is not uncommon for spouses to stay in unhappy relationships for fear of separating and the consequences on the family farm. Some may question why divorce and a family farm are different to any other type of divorce. After all every divorce can be painful. However, with divorce and the family farm, often the farm has been in the family for generations. There is therefore great sentimental attachment to the farmhouse and land. Not only that, the farm is normally both the family home and the source of income for all the family, including extended family. Adding to the complexities, the farm or some of the land could be owned by the older generation or parents may be paid an income out of farm profits as a means of providing a pension after they have transferred ownership of the family farm to a son or daughter. Therefore, where do you start when facing the prospect of a divorce and sorting out what happens with the family farm. In an ideal world, a farming family takes advice before handing over ownership of the family farm to a son or daughter. Often a farming family is told by a private client solicitor that it is tax efficient to transfer ownership of the farm to the younger generation to minimise the payment of inheritance tax. That is all very well but unless specialist family legal advice is taken the family may be reducing the risk of paying a big inheritance tax bill but exposing the family farm to divorce claims. Some farmers think that if the family farm has been gifted or inherited it will automatically be ring-fenced from any financial claims on divorce. That is not the case. Even if an asset is: Owned in the sole name of one spouse; and Was owned by the spouse prior to the marriage ;and Has been in the family ownership for a long time Divorce financial claims can be made against the asset. In a farming family, the asset in question is normally the farm and land. When a couple get divorced all the assets they own, individually or jointly, are taken into account when negotiating a financial settlement or the court makes a financial court order. Although the court will factor in the relevance of a family farm having been inherited or gifted by a husband or wife the court has to look at the husband and wife's needs and, most importantly, the needs of any children. Prenuptial Agreements and the Family Farm If a family own a farm and want to leave it as a legacy or gift to a son or daughter the best option to protect the family farm from divorce claims is for prenuptial agreements to be signed at the time of any marriage. Although the prenuptial agreement can try to ring-fence the family farm from any financial claims in divorce, whether or not the prenuptial agreement will work fully depends on the family needs at the time of the divorce and the availability of other assets to meet divorce financial claims. In any family situation involving a family farm, divorce solicitors recommend legal advice is taken on the benefits and potential disadvantages of a gift or transfer before the family farm is transferred to a son or daughter. Advice can then be taken on the option of a prenuptial agreement or, if they are already married a post nuptial agreement . Divorce and the Family Farm If you are getting divorced and one of you owns a family farm then it is particularly important that both husband and wife get expert legal advice from specialist divorce and family finance solicitors. It is likely to be the case that the farm owner wants to keep the farm and the spouse that does not own the farm wants it to be sold to raise money to buy a house to rehome him or her. There may be mention of the land’s increased value if farm buildings or land could potentially get outline planning permission so it can be developed for housing. In any divorce and financial proceedings, assets need to be valued. That applies just as much when the asset is a family farm. A specialist valuation will be needed to look at the value of the farm and land as well as any ‘’hope’’ value in relation to planning permission and development opportunities or the sale of part of the acreage. In addition, the value of the farm asset will depend on the income produced. [related_posts] If a farm is owned in the sole name of a husband or wife (rather than ownership being shared with parents and siblings) then it may be possible to sell part of the land or a farm building or to raise capital by mortgage to meet a husband or wife's divorce financial claims. When it comes to a family farm and divorce, the court may view the family farm as a non-matrimonial asset and hence will not say that the value should be shared equally between the husband and wife. However, the bottom line is that a husband or wife may get an award that affects the family farm if it is the only way that their housing and other needs can be met. When a divorce solicitor is giving legal advice to either a farmer or their spouse the aim is to achieve a financial solution that provides a home for the husband, wife, and children and ideally does not affect the continued viability of the working farm. This can require creative resolutions to secure the family farm for future generations. For help with divorce and financial claims or prenuptial or postnuptial agreements please contact our expert family lawyers
Robin Charrot
Nov 18, 2019   ·   6 minute read
Financial consultant manager talking with a female client

How Do You Value Company Shares for Divorce?

How do you value company shares to reach a financial settlement?  Our Manchester divorce solicitors have to answer this question when looking at divorce and the family business and negotiating financial settlements. If a husband and wife cannot agree on the value of company shares, the husband or wife can start financial court proceedings. In the financial court case, a judge can order the valuation of shares by an independent forensic accountant.  Ultimately, it is for the family judge to decide on what is a fair value of any company shares and to make a financial court order. A fair financial settlement The family court objective is to reach a fair financial settlement. What amounts to a ‘’fair financial settlement’’ is subjective. A husband's opinion on a fair financial settlement may vary wildly to that of his estranged wife. When deciding how to split family assets the court applies statutory factors, such as the length of the marriage and the husband and wife's ages, to reach what the court considers a fair result.   Although the court looks at statutory criteria when making a financial court order, the judge can exercise discretion. That discretion partially explains the number of appeals against financial court orders. The other reason spouses are often disgruntled with a financial court order is that they do not perceive the financial settlement to be fair as fairness is ‘’in the eye of the holder’’. Valuing company shares to get a fair financial settlement The fairness of the financial settlement depends on assets, such as property or company shares, being valued correctly. To add to the complexity of valuing company shares, frequently our divorce solicitors need to ask experts to value the company shares at different dates. For example, a forensic accountant may be asked to value company shares at: The date of separation; and The date of cohabitation or marriage; and The date the company shares were transferred of gifted to a husband or wife. The Martin case and valuing company shares The Martin case shows just how complicated it can be to value shares in a non-listed company. Last year a judge had to decide how to split the Martin family fortune of roughly 182 million. Mr Justice Mostyn decided Mrs Martin should get about £73 million of the family assets. That is about forty percent of the family assets. After a long marriage, Manchester divorce solicitors start from the premise that family assets should be divided equally on divorce. Equality can be departed from if there are good reasons to do so. Mrs Martin therefore thought that the financial court order was unfair and that she should get more. Mr Martin was also of the view that the financial settlement was unfair. Accordingly, Mrs Martin appealed to the court of appeal and Mr Martin cross-appealed. The facts of the Martin case Mr and Mrs Martin had been married for 29 years and had two adult children. This was a long marriage. At the time of their marriage, Mr Martin owned shares in the family company and Mrs Martin was a shop floor employee.  There were no prenuptial agreements in place. If there had been a prenuptial agreement this could have potentially avoided the contested court proceedings or narrowed the issues. Valuing a company in divorce and financial settlement proceedings The appeal centred on the valuation of the shares in the company, Dextra Group PLC, at the time that Mr and Mrs Martin began to cohabit. At the time the couple began to live together the company was not listed. An expert was instructed to prepare a report on the value of the shares. Mrs Martin valued the shares at 1.6 million at the date of cohabitation. The judge decided the shares were worth 44 million. The valuation of the company shares at the date of cohabitation was key to deciding if Mrs Martin’s 73 million was a fair financial settlement. That is because Mr Martin said the value of the company shares he owned at the date of cohabitation should be ‘’ring-fenced’’ and not shared with Mrs Martin. The Martin court of appeal decision The court of appeal decided to refuse Mrs Martin’s request for more than 73 million of assets. The court of appeal concluded that the first judge had reached a fair decision. Their view was that a judge is entitled to take a view on the value of the assets and wealth that a husband or wife brings into a marriage. In other words, the court of appeal rejected the idea that judges should just focus on the accountant’s figure for the value of the company shares at the time of cohabitation. The court said that a financial settlement '’ involves a holistic, necessarily retrospective, appraisal of all the facts and then the application of a subjective conception of fairness, overlaid by a legal analysis.’' The court of appeal has reconfirmed to divorce solicitors that the financial settlement fairness test is subjective. That subjective approach makes it all the more important for spouses to take early specialist legal advice from divorce  solicitors who are experienced in divorces involving family businesses and in assessing what a court is likely to determine as a fair financial settlement . How can Evolve Family Law Solicitors help? For expert legal assistance with divorce and financial settlements, contact us.
Robin Charrot
Jun 13, 2019   ·   5 minute read
Asian boy on father’s shoulders with background of new high buildings and silhouette construction cranes of evening sunset, father and son concept

What Are My Rights Regarding Family Business & Divorce?     

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. [related_posts] 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.
Robin Charrot
Oct 18, 2018   ·   4 minute read