Divorce When You Run a Family Business

If you own, or have an interest in, a business and are thinking about getting divorced or dissolving your civil partnership, you need to think carefully about the impact this may have on your livelihood. 

Depending on how your affairs are organised, there is a risk that your business may be derailed, or at least damaged, if the court decides that part of its value should be stripped out to make provision for your former spouse or partner. 

Amanda Brown, family law expert at Family Law Group, outlines the key considerations when a family business is involved in divorce or separation.

Consider whether your business is likely to be vulnerable

When deciding how the family’s assets should be split, the court will consider a number of things, including where your assets came from, the contribution you and your former partner made to them and how they have contributed to family life. 

The existence of a business will always be something the court takes into account, but whether the assets of the business will form part of the eventual settlement will depend on the circumstances.

If the business was set up after you got married or entered a civil partnership, it may be that one person sacrificed their own career to give the business the best chance of success.  They may have become an employee or provided support behind the scenes.   The value of the business and each partner’s contribution to building that value will be taken into account in deciding how much each of you should get. 

If the business was already established prior to your union and your partner contributed nothing to its continued success, it is quite possible that the value of the business will be given little if any weight in the equation. 

Company assets are not immune

People often mistakenly believe that because limited companies are treated in law as being separate from the people who own or control them, any value locked-up in a company is immune from attack.  This is not true. 

Depending on the circumstances, it is possible for a court to treat assets owned by a company you own or control as though they belong to you. Known as ‘piercing the corporate veil’, this is not something the court will do lightly but it is a possibility. 

Protect the business  

Very often the income produced by a business will be the main source of income for a family.  Because of this the court will, wherever possible, try to avoid ordering a sale of the business unless it is absolutely essential to ensure a fair outcome.  

Alternatives to sale that may be considered include allowing you to retain the business as your share of the matrimonial assets and awarding your former partner full entitlement to something else, such as the family home.  Consideration might also be given to allowing you an opportunity to raise finance to enable money to be extracted from the business without putting its future in jeopardy.

Avoid court if you can

You and your former partner are far more likely to walk away from each other satisfied that you have got a fair deal if it is you who have decided who should get what.  You will undoubtedly need the help of your solicitor and accountant, and possibly other professionals, to reach an agreement.  If you are both willing it can be possible to resolve matters without the need to go to court.

Protect yourself in the future

It may be the last thing on your mind at the moment, but at some point in the future you might decide to get married again or enter a civil partnership with someone new.  If you do, there are lots of things you can do to protect your business interests (or at least limit the damage) next time round, including:

• Entering a pre-nuptial or post-nuptial agreement excluding your new partner from any entitlement to claim a share of your business; and
• Bringing other people in as owners, as the court will always be more reluctant to break up a business in which you are just one of many people with a stake. 

If you need advice about separating business assets on divorce or separation, or if there is any other family law matter we can help you with, please contact Amanda Brown on 0115 945 4555 or email ab@familylawgroup.co.uk