Getting a divorce can be challenging for many people and matters can become more complicated when both partners work together and run a business.
Sorting out arrangements for the family business during a divorce can be tricky and often raises many complex issues.
Before you divorce from your ex-partner, it is important to consider the implications that it may have on your business.
What happens with the family business during a divorce?
A family business can often be one of the most valuable assets during a divorce.
Typically, if the business has contributed to the family’s finances, it will usually be considered as part of the financial settlement, even where only one spouse is the legal owner.
The court will assess a range of factors, including when the business was established, how the business grew during the marriage and whether both parties were involved, that could be directly or indirectly, by supporting family life.
Before any decisions are made, a professional valuation is often required to determine the business’s true worth.
This may consider the company’s assets and liabilities, profits, future earning potential, shareholdings and goodwill.
Although many people worry that a divorce will lead to the sale of the family business, this is rarely the preferred outcome.
Courts generally recognise the importance of preserving a successful business, particularly where it provides an income for one or both spouses or employs members of the wider family.
Instead, alternative arrangements may be considered, such as one spouse retaining ownership while the other receives a larger share of other assets, a buyout of one party’s interest or a structured financial settlement paid over time.
Where both spouses are actively involved in running the business, further consideration may be needed to determine whether they can continue working together following the divorce or whether ownership should be transferred to one party.
What can be done proactively to protect your business?
The best way to protect the family business begins before (or after) you get married.
A prenuptial or postnuptial agreement is designed to set out how assets, including business interests, should be treated if the relationship breaks down.
While they are not automatically legally binding in England and Wales, the courts will often give significant weight to these agreements provided they have been entered into properly and are considered fair.
It is also important to ensure that business structures and documentation are kept up to date.
Shareholder agreements, partnership agreements and company articles can include provisions that help address what should happen to ownership interests if a relationship ends.
Keeping clear records of business finances and maintaining a distinction between personal and business assets can also be beneficial.
Where appropriate, involving other shareholders or family members in ownership structures may provide an additional layer of protection, although specialist legal advice should always be sought before making changes.
Taking proactive steps early on can help minimise disruption, provide greater certainty and protect the future of the business should a divorce occur.
How can Squares Law help?
Understanding how business can factor into your divorce is imperative to ensure your commercial interests are protected.
Whether you are concerned about protecting a business before marriage, negotiating a financial settlement during divorce or resolving disputes relating to business ownership, our experienced team can provide clear and practical advice tailored to your circumstances.
For support with the family business during divorce, get in touch with our team.
