How do I “divorce-proof” my business?

We deal with many cases involving SME’s and businesses.  The impact on a business of a marriage breakdown can be significant:

  • It can be difficult to focus on your work while you are dealing with the emotional fallout of your separation. This can affect financial performance, the value of the business and the level of your income.
  • The business interest may well be an asset to be considered in the financial settlement.
  • If the business is run as a joint venture by both of you, the future of the business will need to be decided

What are the pitfalls I need to avoid?

Legal advice from an expert

It is vital to get legal advice at a very early stage from a family law specialist who really understands dealing with businesses – not all of them do.  This will avoid you falling into any traps or overlooking issues which need to be addressed.  At Harrogate Family Law we deal with a wide variety of business cases, ranging from those involving small family businesses to ones with directors and shareholders in multi-national companies.

If there are problems in the marriage seek expert legal advice as soon as possible.  Everything you discuss will be confidential and being armed with expert advice may avoid costly mistakes.

“Piercing the corporate veil”

A company is considered by the law to have its own identity. Therefore, just because someone has an interest in a company, this does not automatically mean that a divorce court can interfere with the company and redistribute its property.  However, in certain situations a court can ignore the separate legal personality of the company and treat its property as if it is owned by its shareholder – this process is known as “lifting” or “piercing the corporate veil”. We can help advise you on whether your company is vulnerable to this happening and what can be done to protect your business.

Valuing the business

If divorce is inevitable there is often a knee-jerk reaction that a valuation of the business is needed from a forensic accountant.  These valuations can sometimes be essential, but they can be expensive and should only be obtained if the report is really going to be valuable in resolving the issues.  Thought needs to be given to asking the “right” questions of an expert, so their report actually gives helpful and relevant answers for a business-owner.

There are several different ways to value a business. The way this is approached can have a dramatic effect on the value of the business. Careful consideration must be given to the best way to value the company and your shareholding so that an accurate and fair valuation is used to work out the value of the divorce settlement.

Speak to the business owner

In particular, an expert solicitor will look at whether the accounts of the business truly reflect what is happening “on the ground”. We like to get an understanding of the reasons for a business’ past performance, and its future prospects. Getting a good grasp of the reasons why a business has performed as it has in the past, and the opportunities or challenges it faces in the future, is vital.

Other complicating features

There can be lots of other features to take into account in a divorce involving a business. For example, a lot of businesses have been passed down through one or more  generations. Lots of such business owners are really worried about their family’s business having to be sold to pay for a divorce settlement.

Consideration also must be given to the extent to which it is possible to extract money from a business to pay a divorce settlement, or whether it is possible for this to be done by a business owner taking a smaller share of other assets instead. These are all factors that require a great deal of thought and care when negotiating a divorce settlement.

Prevention is better than cure

You don’t have to wait until there are problems in the marriage to get advice.   We don’t just help people at the end of a marriage, we provide advice and help at the beginning and during the marriage. We prepare lots of pre-nups to protect interests in business.  These agreements are not just limited to protecting business interests and can also ring-fence inherited assets and assets acquired before the marriage. A business-owner can even have a “post-nup” – this is basically a pre-nup entered into after a marriage has taken place.

Harrogate Family Law is acknowledged as one of the leading family law firms in Yorkshire.  We are a niche practice with a team of four experienced lawyers together with an in-house forensic accountant.

Andrew Meehan is an experienced family lawyer specialising in complex divorces involving significant or hidden assets, as well as cases involving children.

He is recommended for family law by both Chambers 2019 (York, Hull and surrounding regions) and the Legal 500 2018 (Leeds/West Yorkshire and North Yorkshire region).

Everyone’s circumstances are different and this article is provided by way of general information only and must not be replied upon.  If you require legal advice on a family law issue, please feel free to contact us by emailing enquiries@harrogatefamilylaw.co.uk.