Specialist divorce lawyer at Maguire Family Law, Kirsten Tomlinson advises on how best to manage and deal with a divorce when you run or have an investment in a family business.
Happily ever after?
The big day has finally arrived and you are marrying the man or woman of your dreams. What a beautiful day. In short, the perfect celebration of love. Fast forward a few years though, and things may look very different. In fact, unfortunately the marriage has broken down and you are facing or instigating divorce proceedings.
In the UK today, more marriages end in divorce than happily ever after. And for entrepreneurs involved in a family-run business either by inheriting it from family predecessors or who have built up the empire with their spouse, or involved them in the day to day running, or even just divested a shareholding to their spouse; the divorce proceedings will need to deal with arrangements relating to the business. This is in addition to dealing with the other financial claims such as other capital assets, income and pensions and dealing with any arrangements relating to any children of the marriage.
Preparing for the worst
Of course, as is often the case, preparation can be key when it comes to matters of business, as opposed to those of the heart. And as unromantic as it may sound, it is possible to take steps to protect a business before getting married.
Pre-nuptial agreements (commonly known as ‘pre-nups’), whilst not legally binding in the UK, are now routinely taken into account by a judge dealing with the financial elements of a divorce. This means it is now easier than ever to seek to crystallise arrangements relating to what will happen to a family business if a marriage ends in divorce.
Individuals entering into marriage who part-own and work for a long-established family business, for example, may want a pre-nup covering their spouse-to-be’s roles and responsibilities (if any) in the business whilst ring-fencing ownership to future-proof against a later divorce.
Whilst the relative certainty of a pre-nup may be attractive to some, it is also important to remember that in commerce as in life, things change. Businesses can decrease as well as increase in value, roles and influence can change, as can markets and products. For all of these reasons, it is important to ensure that any pre-nup is drafted widely enough to protect but not limit claims.
What’s yours is… mine actually
On divorce, the usual starting point for financial matters is equality, providing each party with their fair share of the marital ‘pot’ of assets. For many couples this could involve (at least one) home, possibly an investment or holiday property, cars, art, jewellery and other assets including pensions, businesses and investments such as stocks and shares. Income is also taken in to consideration as well.
However no two cases are ever the same as the circumstances of each divorce and financial details are usually always different. Therefore each case is dealt with on a case specific basis and there are a number of factors that are taken in to account when dividing the matrimonial pot fairly which may not always equate to a 50/50 split.
Divorcing parties will typically be expected to try and reach an agreement with regards to financial matters before the divorce proceeds too far and the Court has to get involved. This can be done via Mediation and using Family lawyers. Whilst it may be relatively easy to reach an outline agreement with your ex over the business and indeed other assets, the opposite is also common. This is particularly the case where the business is very successful, one party feels they have made a greater commitment than the other, or where it is a historical family business with a trading history pre-dating the marriage. In these cases it will often fall to a judge to make a decision on the parties’ behalf. This can prove to be expensive and unfortunately this route often leads to disappointment for one, if not both parties.
What can I expect?
One of the most important steps for parties trying to divorce and deal with a family business as part of that process will be to have the business valued. Typically the valuer will be an expert in valuing businesses of the type in question and will be jointly appointed by the parties. The scope of the valuation, and any specific points of investigation should also usually be explicitly agreed between the parties at the outset. Such a joint appointment should allow a fair and reasonable valuation to be reached, and prevents one party having undue influence to the expense of the other during the process.
Once a valuation has been reached and agreed, the next steps will be to consider the best approach for ensuring the parties each receive a fair settlement. Options could include a business sale, restructure, buy-out of one of the parties or a continuation of the business without any changes to roles or responsibilities; assuming the parties can get along sufficiently well to enable a frictionless working relationship into the future.
There is no one ‘fix-all’ outcome, and much will depend upon the circumstances of the divorce, the state of the relationship between the parties, their desired outcomes and indeed, the trading history and success of the business as things stand at the time of the proceedings.
When it comes to a family business, there is no short cut to ensure a suitable arrangement on divorce. There are steps that the savvy business owner can take to prepare for a future divorce, but they may be seen as unromantic or even offensive to a future wife or husband to be.
Further, many couples build a successful relationship together during the course of a marriage, meaning that only a negotiation taking the business and their other assets as a whole can provide a fair outcome for each party. A marriage involving children may have seen periods of time when one party stepped away from the business to care for young children, providing value elsewhere that may not be as easily noted on a balance sheet.
Ultimately the financial arrangements in a divorce involving a business may be complicated and time-consuming, and it may not always be possible to reach agreements over all aspects of a former couple’s finances. But with a sensible approach and expert legal advice, it is often possible to reach a satisfactory arrangement that both protects the business and provides each party with an arrangement they can live with. Visit : www.family-law.co.uk