Protecting your business in a divorce
Tina Shah

Protecting your business in a divorce

Businesses can be an emotive subject when a relationship breaks down. Often those that have built a business from the ground up or have a business that centres around their particular skill set do not feel they should be forced to sell or share part of what may be a very valuable asset.  

One of the key questions to arise from divorce will be what is the value of the business or share of the business held by each spouse? Consideration will need to be given to its assets, earnings, and structure. Often an expert valuation from an accountant will be relied on. This can also minimise any dispute over valuations. Arranging a valuation can sometimes be complicated and costly, so it is important to get legal advice prior to doing so.  

Protecting your business before a divorce requires careful advice. If you are seen to be moving assets or shareholdings simply to avoid future claims on divorce, then this can damage your case considerably. Where transactions have taken place specifically to do this, the court does have the power to set them aside.

It is worth bearing in mind several broad principles: 

Prevention is better than cure. A pre-nuptial agreement or post-nuptial agreement can assist in limiting claims against a business. It may be too late by the time you get to the divorce, for obvious reasons. But if you have planned well ahead, at the time you get married or subsequently (perhaps when inheriting a business), getting the agreement of your spouse not to make damaging claims against the business can be helpful. If you are currently married and own a business, it is certainly worth considering a nuptial agreement at any stage. 

Do not mix your business assets with your private assets unless necessary. Keeping the business entirely independent of your private wealth can help on divorce. It will help, if say, the family home has not been used to secure borrowing within the business. Whilst this is not always possible, it is an important consideration.  

It is sometimes tempting involving a spouse in the business, not least for tax purposes. There is a balance to be struck; involving your spouse helps them to make a claim, by having been involved in the business and so having contributed to its success. Against that, it is a pity not to use income tax reliefs by appointing them a role within the business.  

Again, this is where a nuptial agreement would help to determine that spouse’s interest if your relationship were to break down.  

Sharing ownership of a business with outsiders can help on divorce. If a business is 100% owned by one spouse who is getting divorced, then the courts may treat it just like any other asset – to be divided or shared, unless there are good reasons not to. If the business is jointly owned with other shareholders or partners, then the court is less likely to take steps that would damage the livelihoods of the other shareholders or partners. 

By taking professional advice and taking time to plan, you can put measures in place to protect your business if your personal relationship were to break down in the future. Tina Shah, Associate in Divorce and Family Law, is experienced in all areas of family law including acting for clients with family farms and businesses.

Contact Tina by calling 0330 0945 500, email or complete our Contact Form and we'll get back to you.