How to Ring Fence a Family Business in Divorce
06 March 2018
A stake in a family business is likely to be a significant asset, which will be considered by the Court when calculating a financial settlement during divorce. There are steps that you can take to help to protect shares that you own in a family business, in case you get a divorce.
How Can You Ring Fence the Business in Divorce?
If you have a family business and you are getting a divorce, it’s likely that you will want to protect your interests and the interests of any of your family members that have a stake in the business. Preparation is key to protecting a family business during divorce.
It may be that you own a family business with your parents or siblings, and you want to ensure that the business is protected if you and your spouse get divorced. Or it may be that you started a family business with your spouse during the course of your marriage, and you want to ensure that your interest in this business is protected in the event of divorce.
Inevitably, the way in which the business is owned and run is likely to impact on the course of action that you take to protect it.
Protecting a Business You Own with Your Spouse
When you start a new business, this will need to be registered and certain paperwork will need to be completed, referred to as ‘incorporation papers’. If you start a business with your spouse during the course of the marriage and you want to ensure that your shares of the business are protected in the event of separation, then you can take steps to specify in the incorporation papers that any of your shares in the business must be bought back in the event of divorce.
Protecting a Business You Own with Your Parents/Siblings
If you own or are a stakeholder in a family business with your parents or siblings, and you are planning to get married, then you may wish to take steps before the marriage to protect your share of the business in the event of divorce.
In this instance, it may be worth entering into a Prenuptial Agreement before the marriage. The Prenup will indicate to the Court that both you and your spouse have considered and made an agreement regarding the assets that you own both individually and as a couple, including any share of the family business that you own.
All of these assets will need to be disclosed in the event of a divorce and will be considered by the Court when deciding on an appropriate financial settlement. Although the Courts of England and Wales are not obliged to take Prenup agreements into consideration during divorce proceedings, they do still carry great weight during Court proceedings and as such are likely to be considered, particularly when they have been drafted correctly.
Any shares of the family business that are not owned by you or your spouse will not be considered by the Court as marital assets. This means that shares owned by other family members will not be at risk of being redistributed during the divorce.
Splitting a Family Business in Divorce
All British businesses have incorporation papers filed at Companies House, which provide a breakdown of each individual’s interest in the business. However, in the event of divorce it can be difficult to determine the monetary value of the shares held by each individual.
For this reason, the Court may consider awarding a higher percentage of other available assets, instead of distributing funds or shares from the family business, as this could affect the profitability of the business. Particularly where the company holds significant value, it would be wise to have the accounts reviewed by a qualified accountant in order to determine the value of the shares.