UK 

How to protect a business from the threat of divorce

  • Describe the way that offsetting works
  • Describe how family businesses are treated when the owners are getting divorced
  • Describe what happens to company shares when the business owners are splitting up
CPD
Approx.30min
How to protect a business from the threat of divorce

The first months of the year are often a busy time for divorce lawyers in the UK, with enquiries rising threefold once the end-of-year holidays are out of the way. 

Despite a growing realisation there is little chance of salvaging the relationship, people typically avoid talk of divorce in the run-up to Christmas, prolonging the marriage a little longer, for the family to spend quality time together, before they start down the road to permanent separation.

Whether or not resolutions lasted this long, a new year often inspires positive lifestyle changes. 

This focus on the future will cause many couples to consider their marriage and finally decide there is nothing left to do; all avenues of reconciliation have been exhausted.

Of course, while divorce is a highly emotional matter, experienced family lawyers work hard to understand their client’s perspective, advising them quickly and cost-effectively and helping them avoid ending their marriage in court, if at all possible. 

Team approach

While many consider a strong marriage to be based on good teamwork, a good divorce will also rely on the efforts of many lawyers and other professionals, collaborating closely to deliver the desired outcome for their client.

Children in the relationship can undoubtedly increase problems during a divorce, but matters can be seriously tricky when one or both of the divorcing couple own or manage a business. Research shows around 1.4m UK companies are now run by couples, with the number on the rise.

This applies to family-run businesses across all sectors and industries, with divorce difficulties often creating unwanted bumps along an already challenging road.

Two’s company

Many business owners remain unaware their partner may be entitled to some share in their company, even if the partner has never been involved in the day-to-day activities of the company. The likelihood of this situation grows with the length of marriage or inequality in financial resources.

In the UK, for the court to consider a ‘fair’ division of all your assets, everything will be taken together in one lump, with little distinction made between assets, unless you have legal documentation that proves a different position.

From there, the court may decide the only reasonable way to divide assets is to sell or break up the business, which can be disappointing for owners who have invested significant time and money into building their company and its reputation. 

Divorce can be bad for business

Dealing with a family business during the divorce process often raises many complex issues, starting with its valuation, inheritance wishes, financial contributions, dividend payments and the shares or interests of other family members. 

The family court will hope to protect a family business from becoming too involved in a divorce, to avoid the business having to be broken up or sold off to realise enough to pay the court determined settlement.

Alternatively, one of the divorcing couple may have to buy out the other if they have a share in the company, or liquidate assets to achieve the same outcome. All of which can be messy and time-consuming, often negatively impacting the performance of the company.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Why might the courts decide to break up a family business if it is family run and the owners are divorcing?

  2. What is offsetting in the context of spouses separating when running a business together?

  3. When is the business valued in the divorce proceedings?

  4. Company shares can also count towards a divorce settlement, true or false?

  5. The matrimonial court has the power to transfer shares if one party does not agree to negotiations. True or false?

  6. Why should couples set up a pre-nuptial contract?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe the way that offsetting works
  • Describe how family businesses are treated when the owners are getting divorced
  • Describe what happens to company shares when the business owners are splitting up

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