If you are considering a divorce, any interests that you or your spouse have in a business will need careful consideration. Owning a business – or even being a shareholder – can mean that there is more to think about than if you and your spouse were employed in conventional jobs.
In this article, we will explain the main considerations for a divorce where one or more of the parties owns a business or a significant shareholding in one. However, please be aware that this article does not constitute legal advice, it is merely a discussion of the factors you might need to discuss.
Don’t lose sight of what’s still most important
Business interests might give you more to think about as part of your divorce, but they are not the most important factor. As with any divorce it’s crucial that all parties – especially if there are children involved – are able to move on and be happy. The presence of a business does not change this, it simply means that the money and assets within the marriage may be a little more complex to deal with.
How can business ownership complicate a divorce?
In some instances, the presence of a business might have little or no effect on the divorce. A growing number of people are starting small ‘micro-businesses’ such as setting up as a solo consultant. They might do this for reasons of tax efficiency and although they form a business they might be the only employee and the company might own little more than a laptop and a mobile phone.
In this instance, the courts might simply look at the income provided to the business owner and include this in their maintenance calculations, just as they would if the owner was employed. If however the owner issues shares or pays a salary to their spouse – which might be done to make good use of personal tax allowances – this will need to be reviewed carefully.
If you own a larger business which has capital assets as well as providing an income, things can start to get more complicated. For example if your company owns or has equity in its premises or machinery, these will probably need to be looked at in more detail.
If you own shares in a business alongside other shareholders, you will also need to consider their interests as well as those of your spouse. Should you divorce, the other shareholders may not be comfortable with your ex-spouse continuing to own part of the business, especially if the divorce is not amicable.
It is best to plan ahead and make provision for what will happen if one or more of a firm’s directors, partners or shareholders goes through a divorce.
How can problems be avoided?
Avoiding complications is something that’s best to address at the outset of either your marriage or starting the business (whichever comes later). However, we realise that if you’re reading this article it may already be too late for that as a divorce may be imminent.
Prenuptial agreements and shareholder agreements are two ways of navigating these issues in advance. We recognise that some couples aren’t comfortable planning for a divorce that they hope they will never need – especially at what should be an exciting time for them. However, a growing number of couples are taking the pragmatic step of having a prenuptial agreement.
How will the courts view a business during a divorce?
Let’s assume that no agreements are in place for how to deal with a divorce. What might the courts look at to help agree a fair divorce settlement that meets the best interests of all parties?
Firstly they would look at the income provided by the business and how this might look after you have divorced. This income would then form part of their calculations for child maintenance for example. This might be complicated if both parties work for the business, receive an income from it or own shares in it.
They will then look at the assets of the company, which might require the involvement of an accountant – or a so-called forensic accountant if the accounts are complex – to determine the value of the capital.
What else might you need to think of?
Given that no two divorces and no two businesses are the same, there is no exhaustive list of things that could happen when a divorce involves a business. However, some other issues that can arise are:
- Working arrangements – If both of you work for the company and even work at the same location, things could become very stressful if you continue to do so. It may be practical for one of you to move and work elsewhere. However, the question of who should leave can be contentious and they would need a sensible amount of time to find a new role elsewhere.
- Confidentiality – Your spouse may know things about your business that are commercially-sensitive. If that is the case, a confidentiality agreement can give you some protection to prevent them from disclosing this to competitors for example.
- Compromise agreements – These can help reduce the risk of a further claim in the future. For example if your business grows significantly after your divorce, your ex-spouse may try to claim more funds from you.
- History of the business – If you started your business long before you were married, this may impact the claim that your spouse has over your business, compared with if you had started the business during your marriage. If you inherited the business from your own family this too may have implications for your spouse’s claim.
As you can see, there are a few more things to think about when your divorce involves any sort of business interests. You may also need financial advice as well as legal advice to prepare for it. However, with the right advice you can still plan for a better future that works well for everyone involved.
We strongly recommend that you get professional, impartial legal advice for your specific situation if you are getting divorced and have business interests within your family. Once again, this article should not be relied upon as legal advice. If we can help, contact us through the website or call us on 0800 138 0458.