Getting divorced – the added complications for business owners

Relationship breakdown is generally stressful and deciding to divorce is not a step that people take lightly.  It generally requires both spouses to think about their financial positions, and about the impact on, and arrangements for, any children that that they have together as well as other practicalities. The situation is complicated further if either or both spouses own a business, whether individually or together.

The nature of relationships varies dramatically from one divorcing couple to another. They can be amicable or acrimonious at any stage of the proceedings and what is right for one couple may not be right for another.  However, there are some fundamental issues to consider if there is a business involved in a divorce.

1. Do you both have a stake in the business, or does it officially belong only to one spouse? Will it be sold, split or kept by one or both of you? If it is owned by one of you, did the other contribute to it in a practical way?
2. If you are both involved in the business, will you be able to continue working together, or will one of you need to step away? If the latter, are there any confidentiality or non-compete issues?
3. Was the business started before or during your marriage? If before it, was a Prenuptial or Postnuptial Agreement made relating to its ownership?
4. Did funds from the marriage contribute to the business and has its value increased during the marriage?
5. If the business is a company or a partnership, is there a shareholder or partnership agreement which dictates when part of the business can be transferred to someone else? Could the divorce trigger clauses in relation to buying or selling part of the business?
6. If the business needs to be taken into consideration on divorce, how will it be valued? You might appoint an independent expert or forensic accountant, but sometimes it is possible to able to agree a realistic figure without this. Will the valuation be based on assets, income or another metric? It needs to be fair and realistic and consider future earnings and liabilities, and potentially goodwill.
7. If the business needs to be divided, how will this affect its liquidity and ongoing operations? Might the divorce potentially disrupt operations or relationships with stakeholders and damage goodwill? Do you need an interim agreement to protect the business?

It will also be important to consider the tax implications of transfer of business ownership and how income will be treated when calculating spousal or child support.

Rebecca Woodley, a family law solicitor at Fraser Dawbarns, comments: “Our specialist lawyers from different legal teams always work together in a joined up way to ensure the best outcome for clients. In addition to handling separation and divorce matters, we can also help business clients to protect their assets when going into a new marriage or co-habiting with someone new.  Pre-nuptial or cohabitation agreements are being increasingly used for this purpose.”

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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.