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Making sure your divorce isn’t bad for business

Getting divorced is hard enough but when there is also a business involved, it can make the split even more difficult, complicated and painful.

In England and Wales, businesses can be considered as ‘matrimonial assets’ and are a key consideration when a couple split. The family courts, not the commercial courts, deal with all related issues, whether the business is a trading firm, a company or a partnership.

Without legal documentation, for example a pre-nuptial or shareholders agreement, the starting point is usually that joint assets are divided down the middle, this can include business interests. How businesses are dealt with is specific to the individual case but even small businesses can be relevant to the outcome.

Where to begin

It’s important to take advice from a specialist family lawyer as well as an accountant to try to ensure that the settlement reached is fair to both parties.

Aspects to consider include to what extent each party is prepared to share the income from the business; to what extent they are prepared to share the ownership of the business as well as future retirement plans and passing on the business to any children.

Inevitably, the business itself will come under intense scrutiny – things like how much income it produces and the liquidity within it. In some cases, it will need to be valued.

Often, the business owner will want to retain the business and compensate their former spouse with a larger share of other assets and maintenance and if at all possible, the courts will try to do this.

Ensuring your business is ‘divorce-proof’

When happily married, no-one ever wants to look ahead to shoring things up in the event that the relationship might sour in the future – but it is worth making a few precautionary preparations including:

  • Setting up a pre-nuptial or post-nuptial agreement to help limit claims against a business;
  • Drawing up a founders’ agreement setting out what is to happen if you divorce;
  • Making sure you keep your business assets separate from your private assets if at all possible;
  • Considering sharing ownership of a business with other parties.

For help and legal advice on this area of the law, please contact our Family and Divorce team or pop into one of our 11 local offices.

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