Divorce can profoundly impact a family business, affecting financial stability and future operations. This article explores the key issues and steps to protect your business during a divorce.
What Issues Affect a Family Business During Divorce?
When a couple divorces, their business becomes part of the assets to be shared, playing a central role in financial proceedings. Family courts handle these issues, not commercial courts, regardless of whether the business is a trading firm, company, or partnership. The courts typically require that businesses and business interests be valued as part of financial disclosure. This valuation process can be extremely challenging and there's a risk that too much emphasis might be placed on the business's value, leading to practical problems in asset division.
Initial Steps: Protecting Your Interests
At the outset, consider what you want to achieve with the business both now and in the future. It's crucial to seek early advice from a family lawyer and an accountant. Your financial settlement should be built around your objectives and needs in a way that is fair to both parties.
For Business Owners: Explore options to protect your business.
For Non-Business Owners: Consider how to claim a fair share without disrupting the business's continuity.
Specific Cases: In businesses like farms, there are additional complexities that need to be addressed.
Court Approaches to Business Division
Courts generally aim to leave the business with the owner while compensating the other spouse with a larger share of alternative assets, such as property equity or spousal maintenance. This approach is often preferred by both parties, especially the business owner who relies on the business for income. However, accurately valuing a business is difficult, and it's essential to have a professional valuation. Courts can be flexible, allowing income sharing or division of shares, though ideally, they avoid leaving one spouse with non-liquid assets.
Important Considerations in Divorce Settlements
Every business is unique, and you need to decide on the best approach for your situation. Consider the following:
Income Production: How much income does the business generate, and does it support a high standard of living?
Assets and Property: Are there assets or property that need independent valuation?
Pensions: Does the business include a pension, such as a Self Invested Personal Pension (SIPP)?
Capital Borrowing: Can you borrow against the business assets for housing?
Are All Businesses Valued?
Not all businesses need to be valued. For example, partnerships that are merely income streams do not need valuation; instead, income can be shared through a spousal maintenance order. For businesses owned outright or with significant shareholding, valuation is necessary and complex, requiring an accountant who specialises in this field. It's essential to discuss this with an experienced family lawyer before taking any steps.
Will the Court Order a Business Sale?
While courts can order a business sale, it's uncommon. More often, the non-business-owning spouse receives a larger share of available capital or maintenance from the business income stream. Negotiations should focus on sharing business benefits effectively, as litigation can be expensive and time-consuming. Expert legal advice from the outset can save costs and simplify the process.
Does It Matter Who Owns the Business?
The ownership structure of the business affects how it's treated in divorce. If one spouse or both own the business outright, it's considered a family asset. For businesses with multiple owners or minority shareholdings, the court is less likely to disrupt the business by selling assets or extracting capital. In cases of "quasi partnerships," courts assume owners will act by agreement without reducing share value due to minority holdings.
Steps to Take Next
Independent legal advice from a specialist family lawyer is critical. Avoid making changes to the business that could be seen as obstructive to negotiations, as this can harm your position. Sensible steps can reduce divorce risks, but ensure the business is not jeopardised by large borrowings or asset dissipation. If necessary, courts can set aside arrangements designed to dissipate claims.
Conclusion
Navigating a divorce involving a family business requires careful planning and professional guidance. Contact our experienced family lawyers to discuss your specific needs and protect your business's future. For more information, reach out to Amanda at amanda.adamson@wyethpaullaw.co.uk or call the office at 02392 001511.
The contents of this article are intended for general information purposes only and shall not be deemed to be or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
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