Why you can’t divorce business from family issues
10th March 2016
OWNING and running your business is hard work.
It is the dream of many to be their own boss but the reality is often a lot harder: 16-17 hour days followed by sleepless nights about how they are going to pay themselves that month are common tales when speaking with business owners and entrepreneurs about the early days.
It is understandable therefore why business owners want to protect their businesses. They take out all manner of insurances, place key personnel in strategic positions and give careful thought for every eventuality.
Except for divorce.
Pre-Nuptial Agreements are now becoming a regular occurrence and, as long as certain boxes are ticked, are likely to be upheld by a Court.
Therefore, where a business owner is getting married, he or she should give serious consideration, and take legal advice, upon getting a Pre-Nuptial Agreement.
It is extremely unusual for a business to be ordered to be sold in the event of a divorce or even for shares to be transferred, but having a business involved in divorce proceedings can bring complications.
Firstly, it is likely that the business would have to be valued. No business owner wants a forensic accountant crawling over the inner workings of the business. It is also time-consuming and expensive.
Secondly, in many cases the retention of the business assets will come at the cost of a share of the liquid assets. This will depend on the circumstances of the case but I have seen it occur on numerous occasions.
Business owners should also be careful when giving shares to employees. Take the example of the Finance Director of a company who has performed so well that he is given a 20% interest in a small, profitable family business.
If that Finance Director gets divorced then his 20% interest in the business suddenly becomes “matrimonial property”, with consequences for that business.
In these circumstances we advise business owners to make it a condition of receiving the shareholding that they enter into a Pre-Nuptial Agreement if they are not yet married or a Post-Nuptial Agreement where they are already married to ensure that the shareholding is ringfenced.
It is a simple but effective step to take to add an extra layer of protection to your business.
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.
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