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Why divorce can be bad for business

9th January 2019

Divorce January dictates a busy start for Family team

January is traditionally a busy month for divorce lawyers in the UK, with enquiries rising threefold once the end of year holidays are out of the way.

Despite a growing realisation there is little chance of salvaging the relationship, people typically avoid talk of divorce in the run-up to Christmas. They prolong the marriage a little longer, for the family to spend quality time together, before they start down the road to divorce.

January is also the time we all make resolutions and plan for a better year ahead. This focus on the future will cause many couples to consider their marriage and finally decide there is nothing left to do; all avenues of reconciliation have been exhausted.

Of course, whilst divorce is a highly emotional matter, experienced family lawyers work hard to understand their client’s perspective, advise them quickly and cost-effectively, helping them avoid ending their marriage in court, if at all possible.

A team approach

Whilst many consider a strong marriage is be based on good teamwork, a good divorce will also rely on the efforts of many lawyers and other professionals, collaborating closely to deliver the desired outcome for their client.

Children in the relationship can undoubtedly increase the problems during a divorce, but matters can be seriously tricky when one or both of the divorcing couple own or manage a business. Research shows around 1.4m UK companies are now run by couples, with the number on the rise.

Two’s company

Many business owners remain unaware their partner may be entitled to some share in their company, even if the partner has never been involved in the day-to-day activities of the company. The likelihood of this situation grows with the length of marriage or inequality in financial resources.

In the UK, for the court to consider a ‘fair’ division of all your assets, everything will be taken together in one lump, with little distinction made between assets, unless you have legal documentation that proves a different position.

Divorce can be bad for business

Dealing with a family business during the divorce process often raises many complex issues, starting with its valuation, inheritance wishes, financial contributions, dividend payments and the shares or interests of other family members.

The family court will hope to protect a family business from becoming too involved in a divorce, to avoid the business having to be broken up or sold off to realise enough to pay the court determined settlement.

Alternatively, one of the divorcing couple may have to buy out the other if they have a share in the company, or liquidate assets to achieve the same outcome. All of which can be messy and time-consuming, often negatively impacting the performance of the company.

Many businesses don’t have the spare capital or assets to liquidate that could help achieve a clean break and the resultant pressure to sell, will typically signal the end of the business – which can be considered by the courts.

It is not uncommon for newly divorced partners to have to work together until the business can be sold, which brings a whole new series of challenges – to achieve the maximum sale price will need the pair to work successfully together and make jointly beneficial decisions!

Protect your business from divorce

The first step to protecting a business is not particularly romantic and requires foresight at the outset to draft appropriate documentation. Pre-nuptial agreements are a tricky topic for many couples, although seen as overly pessimistic, they are essential for any business.

The agreement is not just about the relationship between the owners, but the future of the business, its reputation, the lives of its employees, any investors, its clients and even its customers. A Founder’s Agreement is a good place to start.

The agreement sets out formally how the founders of a business are going to operate it, to avoid any disputes or misunderstandings which could threaten the business in the future. In the UK this formal document will typically be in the form of a Shareholders Agreement.

The Family Law team here at Ansons works closely with our Corporate Law team to help set up businesses efficiently, but also to assist when a relationship has gone wrong and divorce is inevitable.

Leave emotion at the door

The time to discover your business has not been set up with the correct agreements, is not when divorce lawyers are looking to get it valued in preparation for a sale. It will be an emotional time and preparation in advance will ensure a more amicable divorce, with everyone aware what’s at stake.

Whether your relationship is strong and long or it is becoming tense, now might be a good time to have a chat with one of our lawyers to understand your position. We can leave emotion aside and call on the services of a wide range of specialist lawyers who will advise and protect your position.

You might own all, part or none of a family business, but knowing which direction your next step should take you in the future, requires first knowing where you are now. If you need guidance from an expert, speak to Mark Buttery on 01543 431924 or email him at mbuttery@ansonssolicitors.com