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Divorce & The Family Business

Specialists in Divorce involving the Family Business. We are Financial Settlement Solicitors with the expertise to resolve financial claims involving a business.

When it comes to divorce and the family business, whether you own the business or you are making a financial claim over the family business, your interests need protecting.

Protecting you

The expert team of highly experienced divorce financial settlement lawyers here at Evolve know that where there is a divorce claim involving a family business the business and its value are often pivotal to the financial settlement. We are here to protect your interests.

Understanding the business

The expert divorce financial settlement solicitors, led by Robin Charrot, have substantial experience in representing spouses, civil partners, business owners and non-business owners in financial Court proceedings involving a family business. The team understands the complexities of family businesses and divorce. For example, a spouse employed by the business, minority shareholdings and business valuations, the business premises forming part of a husband or wife’s SIPP pension, or questions over the use of directors loan accounts.

If your divorce involves a family business our team at Evolve will take the time to understand your concerns and the particular family business issues that need strategic and careful expert attention.

Why choose the divorce financial settlement solicitors at Evolve Family Law?

Partners, Louise Halford and Robin Charrot lead an experienced team of dedicated family solicitors who have the experience and expertise to advise on financial settlements involving a family business; from the sole trader to shell companies to serial entrepreneurs to companies with multi-million turnovers involving complex trust ownership structures, shareholder agreements, prenuptial agreements or postnuptial agreements. At Evolve we combine expertise with a personal touch, focussing on what you want to achieve out of your divorce financial settlement.

Divorce And The Family Business– Your Questions Answered

Divorce and the family business can’t be compartmentalised. Even though a husband, wife or civil partner is not a partner or shareholder or employee in a family business they can still bring a financial claim and ask the Court to order the sale or transfer of the business or shares in it. The ramifications of a divorce can affect a family business and impact the other company shareholders and employees.

Is a business asset ringfenced in financial Court proceedings?

Many people assume that if there is a family business that the business assets or the husband or wife’s shares in the family company are ring-fenced and won’t, therefore, form part of the divorce financial negotiations or a Court-ordered financial award. That is not the case unless the couple signed a prenuptial agreement or postnuptial agreement ringfencing the business asset and the Court upholds the terms of the agreement.

As part of the divorce financial proceedings, the Court can order the valuation of business assets as well as order the sale or transfer of company shares. It is therefore important to get early specialist advice from divorce financial settlement solicitors on divorce and business assets to help resolve the relevance of the business assets and, if the business is a marital asset, to advise on the options to achieve a financial settlement.

How are unlisted company shares valued in divorce financial proceedings?

Sometimes it isn’t necessary to value a company or a shareholding. For example, if there is an existing agreed sale of the business to an arm’s length third party or the company is a new startup. However, in many divorces, the company shareholding and the income it produces is the main family asset and accordingly, it does need to be independently valued.

The husband or wife with the shareholding in the family business often assumes that the company should be valued by the company accountant. The views of the company accountant may be helpful to the shareholders but it is usual for the parties to agree, or the Court to appoint, a single joint expert to value the shareholding and family business. This report will usually consider the:

  • Value of the company as a whole.
  • Value of the husband or wife’s shareholding if they are not 100% company owners and apply a minority shareholding discount, where relevant.
  • Tax implications of a sale or transfer of the shares.
  • Liquidity of the shares.
  • Potential income from the business because sometimes the historical or current level of dividend income is not sustainable. In other company situations, the shares could provide additional income.

The accountant report can be asked to address other matters, such as an analysis of the movements on a director’s loan account.

A shareholder will usually want to retain the shares in the family business and so won’t see the need for the company to be valued. However, if the shareholder is going to keep the shares in the company, it is necessary to know how much the shares are worth to then be able to calculate how many of the non-business assets, such as the family home or pension, that the other spouse should retain.

What Orders can the Court make in relation to a shareholding or interest in a family business?

The Court can order the:

  • Sale of the shares or
  • Transfer of the shares.

Other orders that the Court may make that can affect the company are:

  • The payment of spousal maintenance – the Court’s decision on the amount of spousal maintenance may be based on the expert’s views on what is a sustainable level of income from the business.
  • The payment of a lump sum to the non-business owner spouse or to the spouse ordered to transfer their shares – the amount of the lump sum may be based on the expert’s views on what the shares are worth and also the liquidity of the company.

Does a business asset have to be disclosed in financial Court proceedings if it was owned prior to the marriage?

A business asset has to be disclosed whether or not the business was owned by one spouse prior to the marriage. Failure to disclose any business asset could have serious implications in any divorce financial Court proceedings. If an agreement is reached or a Court Order is made without disclosure of a partnership or shareholding then the Order could be overturned at a later date. Within the divorce settlement financial negotiations or in the Court proceedings it can be argued that the divorce business assets or shares should not be classed as marital assets and should therefore be ring-fenced as pre-marriage acquired wealth.

Can shares in a family business be transferred to a third party to avoid a divorce financial claim?

If shares or other business assets are transferred to a third party with a view to avoiding or defeating a financial claim the Court can make an injunction Order or can order the transfer of the assets or shares. If shares are transferred to a third party it is likely to make the Court proceedings more complex. Furthermore, the Court could make adverse inferences about the timing of the share or business asset transfer.

If a spouse is an employee of the family business can their employment be terminated because of the separation or divorce?

A spouse who is an employee of a family business has employment rights. These rights are independent of whether or not the spouse is an officer of the company or a company shareholder. Accordingly, a spouse has employment law legal remedies if their employment is terminated as a result of the separation or divorce. It is therefore vital to get early expert legal advice before sacking a spouse or making a spouse redundant.

If a spouse’s employment is terminated, resulting in a loss of income, the spouse may be able to apply to the family Court for spousal maintenance in addition to their potential separate employment law claims.

If one spouse is the majority shareholder in the company and wants their husband or wife to leave their employment in the business then this can normally be negotiated as part of a financial settlement, with an agreement that the employee spouse won’t be able to bring a separate employment law claim.

What is the status of a shareholder agreement in divorce financial settlement Court proceedings?

Even if there is a company shareholder agreement the divorce Court can make orders in relation to the divorce business assets and shares, including Orders for the sale or the transfer of the shares.

Can spouses or civil partners continue to run a business together after separation or divorce?

A husband and wife or civil partners can continue to run a business together after separation or divorce but it is important that a detailed agreement is reached and properly documented to avoid problems and disputes in future. That minimises the risk of a future falling out. Protection can be provided by written employment contracts, a shareholder agreement and a 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 so 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.

Is tax payable on a share transfer between spouses?

Potentially tax is payable on a share transfer between spouses or civil partners but the timing of the transfer can have an impact on whether any tax is payable or not. It is therefore always important to get specialist family law and accountancy advice at the time of separation and before transferring shares.