FAQs – How do I protect my business in a divorce?
As well as being a stressful time, a marital breakdown can have an effect on your business. Rebecca Silcock, partner in our Family team answers some questions on how to protect your business in a divorce.
Entrepreneurs are typically driven, ambitious people and understand risks appear in the guises of bad luck, competition or the economy. They plan to manage these risks. But how many plan to minimise the effects of the distraction, emotion and financial costs of marital break down upon their business?
The court does not value the contributions of homemaking or breadwinning differently, viewing both as equal. So when applying the yardstick test of equality, an equal division of assets is often fair. This can be an exception in a short childless marriage or where assets can be ring-fenced if acquired prior to marriage. Generally the business will be put in the pot for division.
Most entrepreneurs will face the reality of an equal split as fair and can often retain their business allowing their spouse to keep other assets but sometimes this is not possible.
Q Should I consider a pre-nuptial agreement to protect my business?
A Yes the courts are becoming increasingly willing to uphold pre-nuptial agreements if they are fair and entered into without duress or coercion, both parties had legal advice and there has been financial disclosure. I would advocate regular reviews if for example circumstances change, such as on the birth of a child.
Q Is it wise to consider disposal of business assets if a divorce is on the cards?
A No if an asset is disposed of or, ownership is transferred, then the courts can set it aside and are able to impose cost penalties, so that is not a good idea.
Q What if my spouse has shares in the business? If transferred back to me will this reduce her income?
A You may have to consider a share purchase agreement to buy back her shares or they could be transferred in lieu of other assets. You could consider a separate class of shares to enable an income to continue to be paid but do consider whether the new shares should have no voting rights.
If you have any questions or would like advice in protecting your business, contact our Family team on 01225 750000.