Soaring divorce rates create uncertainty for family-run companies but there are ways to guarantee business as usual, says Mark Buttery.
04 March 2019 | Mark Buttery
The beginning of a new year is a busy time for divorce lawyers in the UK, with inquiries rising threefold once the end-of-year holidays finish.
While 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 to avoid ending their marriage in court.
Take a team approach
While many consider a strong marriage to 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 owns or manages a business. Research shows around 1.4 million UK companies are run by couples, and that number is rising.
Many business owners remain unaware that 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 complex issues, starting with its valuation, inheritance wishes, financial contributions, dividend payments and the shares or interests of other relatives.
The family court would 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 firm, or liquidate assets to achieve the same outcome. All of which can be messy and time-consuming, often negatively affecting company performance.
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, the pair will need to work successfully together and make jointly beneficial decisions.
Protect your business
The first step to protecting a business is not 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 that could threaten the business in the future. In the UK, this document will typically be a shareholders' agreement.
Leave emotion at the door
Not having your business set up with the correct agreements can cause additional stress. If divorce lawyers are looking to get a business valued in preparation for a sale, having agreements in place will ensure a more amicable divorce.
Whether your relationship is strong and long or it is becoming tense, now might be a good time to have a chat with a lawyer who can leave emotion aside and discuss your options.
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.
Mark Buttery is a solicitor in the family law team at Ansons