How to protect a family business from divorce

Divorce is never easy, and adding a business into the mix can create further complications.

There is the possibility of retaining joint ownership of businesses after a divorce has concluded, however, most couples find it difficult to remain business partners. The main objective when progressing with a divorce is often to cut all ties with your spouse and to obtain a ‘clean break’, allowing each of you to move forward independently.

Options for divorcing business partners

Where it is not possible to retain joint ownership of any businesses or where only one spouse has a business interest, the Court usually aims to preserve the business as they are often a primary source of income.

Therefore, establishing the value of the business is crucial as this will need to be considered alongside other assets such as property, savings, and pensions when negotiating a financial settlement. It is also important to understand how the business is structured and what options are available to realise business interests.

Key considerations on dealing with business assets arising from a divorce include how business involvement will continue, the division of shares in a limited company, and any interests held by family members or third parties.

A common solution is a ‘buy-out,’ where one spouse will retain their business interest and control of the business but purchases the other’s share.

Businesses are not liquid assets, meaning that extracting cash can be complex and may have significant tax implications. If immediate funds are not available to buy out your spouse’s interest, payments can be made over time, or it may be appropriate for your spouse to receive a larger share of other assets and/or maintenance.

Whilst a formal business valuation is not always necessary, they can be useful to ensure the correct sums are paid, and you should take legal advice to consider the appropriate options in your circumstances. Your solicitor can advise on whether an expert valuer should be instructed. Business liquidity, tax implications, and realistic timescales must also be carefully considered.

Shareholder agreements

It may be difficult to sell business shares, particularly, if there are several shareholders. If the Court orders a transfer of shares to your spouse, it may assist for you and your spouse to enter into a shareholder’s agreement to limit post-divorce disputes.

Employment claims

If your spouse is an employee in your business, terminating their employment could result in legal claims. You should carefully assess your options and take legal advice before making any rash decisions.

Nuptial agreement protection

Nuptial agreements, such as a pre-nuptial agreement entered into prior to the marriage or post-nuptial agreements entered into after the marriage, can help to protect business interest and reduce disputes in the event of a separation.

These agreements can be particularly useful if a party owns a business prior to the marriage or if children have an interest in the business.

Nuptial agreements are not legally binding however, the Courts are likely to uphold an agreement if it is deemed fair and was freely entered into and so expert legal advice is essential.

Dispute resolution

There are many ways in which disputes can be addressed, though in the first instance, you should seek independent legal advice.

Alternative dispute resolution methods, such as mediation or collaborative law, may be worth exploring as an alternative to Court Proceedings.

If you’re in need of advice regarding divorce and separation or would like information in respect of nuptial agreements, shareholder agreements, or employment claims, our experienced lawyers can help.