It's none of your business" - How divorce affects your business
How does divorce affect your business?
Marital breakdown can be an extremely distressing and difficult time for all parties involved both emotionally and financially.
If there is a family business, how will this be affected on divorce and how can you protect it? A spouse may never have been involved in their husband/wife’s business and yet when the marriage breaks down, the business is an asset that has to be taken into account. Following the landmark case of White v White, the role of homemaker is regarded as an equal contribution to that of the breadwinner. The fact that a spouse has never set foot in their spouse’s business, does not mean that the business is protected from the financial process on divorce.
There are also many cases when both spouses are actively involved in the family business and each view their own role as integral to the running and survival of the business. What happens then? It is important to identify the issues early on to avoid excessive costs:-
- Where did the funds to set up the business originally come from? Was the business inherited by one spouse? If so, all or part of the business may be ring fenced as pre-marital wealth. Was the business set up by one spouse long before they were married? If so, there will be the task of establishing the pre-marital value of the business to exclude from potential division. How has each spouse contributed to the business (remember, in long marriages, the contribution of home maker is regarded as equal)?
- How much of the family wealth is in the business? Is all the capital tied up in the business? If so, it will be difficult to offset one spouses interest in that business with other capital if there isn’t any!
- What is each spouse’s role in the business? If the business is wholly or largely run by the efforts of one spouse, and it is the income provider for the family, all efforts should be made to keep the business running successfully and avoid a sale. Alternatively, are both parties involvement in the business fundamental to the future success of the business?
- Do the spouses work as a team or is there an independent management team who can assist? If both parties are heavily involved in the business and both parties want to remain equally as involved, can this work practically?
- How involved does one party wish to be? Do you want to stay as involved? Do you want to retain an interest but not be involved in the day to day running of the business? Do you want to exit the business permanently? Each parties wishes should be indentified as early as possible.
There are many other considerations that have to be made upon divorce and the affect this has on any family business. The above is just a snapshot of the type of things to think about. In addition, it is always important to remember that prevention is better than cure and there are documents that can be entered into prior to embarking on marriage which can protect your business in the future should the marriage later break down.
In light of the complexities of the law and the drastic impact divorce can have on a business, it is advisable that any business owner contemplating marriage or divorce seeks legal advice at the earliest opportunity. The family team at Hughes Paddison have huge experience in dealing with complex financial issues arising from divorce and will be happy to offer guidance and advice on all aspects of family law. If you require more details on protecting your business on divorce or for any advice in relation to family breakdown, please contact 01242 574 244.