Divorce can be messy and complicated, particularly when there is a family business involved. No judge would want to destroy a family business to be able to achieve a perfect division of assets. Instead, a judge would look to find a compromise that puts the needs of both spouses and their dependents first. Owning a family business makes things more complicated, but there are solutions to be found if you are both willing to work together once more.
If you’re heading for a divorce and wondering how best to protect your family business, here are the things you will need to consider.
The Structure Matters
If both spouses are directors in a family-owned business, there are a few options available. The first is that one spouse keeps the business and the other receives a large share of the assets and pension in return for giving up his/her directorship. Another option would be for one spouse to receive a monthly income from the business, based on business profits. If no agreement can be reached, the only option might be to sell the company and split the proceeds.
If there are additional directors to consider, this further complicates the matter. The best option for both spouses is to try to reach an amicable agreement out of court, as this can reduce the cost of solicitor fees. If you’re struggling to reach an agreement, try mediation. This uses a neutral third party to help couples to reach an agreement.
Both spouses could be made equal shareholders in the business if there are insufficient assets to meet the valuation. This will prevent the business from being sold, and this means that both parties share and an equal risk in the business. A comprehensive shareholder’s agreement will be required to protect both parties.
No Judge Will Seek to Break Up a Business
Unless both parties are completely uncooperative, a judge would not want to see a business sold just to be able to create a clean break. This is particularly true if the business is the source of income and pension plan for one spouse. To avoid this, the spouse retaining control of the business may have to give up a larger portion of the marital assets.
The Valuation Can Be Disputed
It’s not uncommon for a spouse to give an unfair valuation of a business. If you suspect the business is worth more than your ex is letting on, you can dispute the valuation. You would then need to instruct your own forensic accountant to provide a valuation of the company, which could take months to complete. This could also backfire if it is determined that the company is worth less than the initial valuation.
You Need Multiple Solicitors
When you are dealing with a family business in a divorce, your divorce solicitor will not be equipped to handle everything. You may also need to instruct a commercial solicitor experienced in this area of the law to help protect your interests. Paying multiple solicitors can be costly, which is why it is beneficial to agree as much as possible outside of court to minimize the billable hours.
A Pre- or Post-Nuptial Agreement Helps
While a pre- or post-nuptial agreement might not be watertight, it can be helpful to have an idea of how you will split your family business in the event of a divorce. This could form the starting point for negotiations, as you’ll be starting a point where you once found an agreement. Significant changes to the business could alter the course of the proceedings, but you’ll be starting in a neutral place.
