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Protecting the Family Business

Resolving financial issues following family breakdown is not simply a business deal. Even hardened business people can find this the toughest time they have experienced.

Businesses form part of the assets to be shared on divorce and can be particularly difficult to deal with, particularly if the business is one which has passed down generationally to the current owner.

At times like these, everyone needs support from specialists who understand both the emotional and legal issues they are dealing with.

The specialist Family Team at Ward Hadaway have particular expertise advising on financial issues arising from both divorce and cohabitation breakdowns where there are complex and business assets involved.

The business owner may also find it difficult to adjust from dealing with the business in a commercial context, where disputes are dealt with by the commercial Courts, to find that the Family Court has the power to deal with the business.

This can extend to the point of the Court determining that the assets held by a company are not safe from the family Court, perhaps because of the way in which the purchase of those assets was funded, or to the extent of transferring shares to the other spouse.

The family team at Ward Hadaway can involve the specialist expertise of their Commercial and Corporate colleagues in order to ensure that their clients achieve the best outcome.

Extracting a fair settlement in circumstances where the family wealth is tied up in a business can be challenging. There is generally a concern on all sides not to “kill the goose that lays the golden egg”, in other words not to harm the family business which has provided the family with their income.

The Family Court has to balance this, however, with ensuring that everyone gets a fair outcome, and this can have a real impact on the business.

Another potential complication is where both parties work together in the business. We have dealt with cases where it is possible for that to continue with a carefully worded Shareholders’ Agreement or Partnership Agreement, to ensure conflict is not simply stored up for the future.

In the majority of cases, however, one party prefers to extract themselves from the business, and often a Compromise Agreement is needed to ensure that this is done in such a way that no future claims lurk in the background. Our team can call upon our specialist Employment colleagues to assist.

There is also no point in achieving a settlement which leaves one party with a large and unexpected tax bill, so advice on the tax implications of any changes in the business ownership or structure is necessary at an early stage.

Planning ahead for how to deal with a family business on marriage breakdown is also key. Carefully considered Pre Nuptial Agreements are now key for business owners together with Shareholders’ and Partnership Agreements.

These can provide a clear solution, in advance of any relationship difficulties, for how the business is to be dealt with should the worst happen.

Given the wide discretion of the Family Court, such planning can avoid cost, unnecessary conflict and can ensure the business operates smoothly during any marriage breakdown.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.

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