Have you ever wondered, ‘how to protect my business in divorce?’ If you are in a high net worth relationship and own a business that predates marriage, finding the answers to this question will become even more critical.
Many entrepreneurs will assume that their company won’t be considered a matrimonial asset. However, divorce courts have a wide range of powers when it comes to financial separation — which could put those valuable ‘off the table’ assets at significant risk.
If you are a business owner it is therefore vital to consider how much protection is in place for your hard-earned assets. Understanding the typical pitfalls and opportunities could secure your ownership and give peace of mind for the future.
What Happens to a Business in a Divorce?
During divorce and separation, one of the most complex and potentially stressful factors will be determining what constitutes matrimonial or non-matrimonial assets. In essence, anything classed as being matrimonial is liable to be viewed as jointly-owned and divided among spouses. Non-matrimonial assets are more likely to be regarded as ring fenced and, therefore, excluded from a financial settlement.
It is, however, important to note that the courts have broad powers when it comes to ensuring that both parties have adequate means to maintain a comfortable lifestyle. In effect, this means that even high value assets that one spouse brought into the relationship could be unprotected and open to division. Once all assets have been valued, the courts could choose to make any of the following financial orders:
The sale of the business, either in part or in total
A percentage of shares are transferred between spouses
A share sale from one spouse to the other
The business is divided among both parties
The business owner makes a lump sum payment to offset their spouse’s entitlement to the business
How to Protect My Business in a Divorce
There are a number of ways in which a business owner could look to safeguard their ownership of their company. These strategies are often precautionary measures that would need to take place before the relationship breaks down. The most common options available to you include:
Enter into a Pre or Post Nuptial Agreement
Technically, pre and post nuptial agreements are not legally binding in England and Wales. However, it is becoming increasingly common for the courts to use them as a significant reference point in their decision making. For this type of agreement to carry as much legal weight as possible, both parties will need to have entered into it freely and with full financial disclosure.
If your business was firmly established before marriage, it’s important to speak to a legal professional about creating a prenuptial agreement. This may act as a way of insulating the company from potential division after wedlock. If the marriage has already begun, you can still work towards ring fencing the business in the form of a postnuptial agreement.
Be Cautious With Shares
Making your spouse a shareholder will give them a vested interest in the company. This entitlement can significantly complicate a divorce. If there is not enough capital in either the business or other assets to buy out the other party’s shares, division might soon become one of the few remaining options.
Consider the Impact of Employing Your Spouse
Divorce is usually an extremely stressful period of time for all involved. When both spouses work together, the personal difficulties can quickly create a tense working environment. Terminating your partner’s role might seem like the obvious solution, but this could lead to further complexity in the form of employment claims.
Additionally, being employed in the business would make it easier for your spouse to suggest that they have played a more significant role in its success. This leaves you open to a claim for a bigger share in the company — even if you have already entered into a pre or post nuptial agreement.
Structure the Business Wisely
An increasingly common option for business owners is Family Investment Companies (FICs). Managed correctly, FICs can secure company assets against a subsequent divorce in a number of ways.
The FICs’ articles of association can restrict the transfer of shares to spouses, limit their voting rights, and even make prenuptial agreements mandatory for key shareholders.
Seek Legal Advice
High net worth divorces are widely accepted as being among the most complex types of separation. When such significant assets as businesses are a factor, it’s important to seek appropriate legal advice as soon as possible. Ultimately, no two divorces are ever the same, so having a tailor made strategy in place to secure your objectives will be in your best interests.
Protect What Matters With Lowry Legal
The end of a marriage presents significant challenges for separating spouses. When tensions are running high, making child arrangements and living arrangements can seem especially daunting. For relationships involving significant wealth, attempting to reach an understanding over valuable assets such as businesses will often make the process even more complex.
Lowry Legal is a boutique law firm based in Manchester but operating throughout England and Wales. We specialise in offering discreet legal representation for high net worth individuals. Our services cover every aspect of family law, from pre and post nuptial agreement to cohabitation agreements and disputes. We can even assist with international divorce cases.
When you work with us, we dedicate time to fully understanding your circumstances and goals. Once we know your main challenges, we’ll create a strategy designed to achieve the right outcome for you. We also realise that it’s important for you to have total transparency over costs, so we take steps to outline where you are up to with fees at all times.
A holistic service, we can draw upon the expertise of third parties when necessary. Alongside our skilled in-house family mediator, we also use forensic accountants, tax professionals, and more. We understand that collaboration is often one of the best ways to reach a timely outcome, but can offer robust representation if this is not feasible for you.
For more information about how our team can help, get in touch with us today.