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How to limit the damage to your business from divorce by planning ahead

Thursday, 3 November 2016

AdobeStock_36522890One of the biggest mistakes that you can make as a business owner is to not give your company adequate protection against a marital breakdown. Business entrepreneurs often put in place contingency plans for a number of different scenarios from insurance for fire and disasters to company policies which prevent data theft and cyber attacks. Why then do so few businesses prepare for what will happen to their business if a business owner’s marriage breaks down?

The impact of divorce on a business

The breakdown of a marriage can put an enormous strain on your ability to run your business. Emotionally, the personal turmoil of a divorce can take away your ability to focus on the day to day running of your company. However, separating from your partner and then delaying a decision to get divorced can prove costly. When it comes to making a valuation of your business when making a settlement with your spouse, the courts may acknowledge any rise in value that happened between the date you separated and the date of divorce. Then there is the actual funding of your divorce and settlement which may result in selling off company assets and the undoing of years of hard work.

Planning for the future

The best way for you to protect your business from the all-too-common occurrence of a divorce is to plan ahead, so you can avoid the heartache of having to sell your business assets, or even your business itself to fund a divorce settlement.

The first step to take is to consider pre-nuptial and post-nuptial agreements. A pre-nuptial agreement, if drafted correctly, will help to separate your personal assets from your business assets, effectively ring fencing them from any claim by your spouse at a later date. However, the agreement must be freely signed by your spouse and signed well in advance of your wedding day, otherwise the courts may reject them as void. Post-nuptial agreements can be drafted by a solicitor and can be signed after the wedding has taken place. Here you can also decide how you will divide your assets if your marriage comes to an end. However post-nuptial agreements often face a higher level of scrutiny and are sometimes even rejected by the courts.

Another option with limited companies is to enter into a shareholders’ agreement, a confidential contract between shareholders of your company. This makes it difficult for a shareholder’s spouse to gain access to any shares in the business in the event of a divorce. It can also be wise to open up the shares in your company to people outside of your immediate family, as the court may be less willing to order a sale of the business which could cause problems for people who have no involvement in the divorce proceedings but could be damaged financially by an order of sale. It is also important to regularly review your Articles of Association to ensure that shares are protected during a divorce.

Finally, think carefully before you involve your spouse in your business affairs. They may have lots of skills which could benefit your business and it may even be beneficial for tax purposes, however the more closely your spouse is involved the more likely they will wish to stake a claim in it should you marriage unfortunately break down.

If you are planning on getting married and would like to investigate all the possible avenues of protecting your business in the future then we can help. To arrange an initial consultation with a solicitor experienced in family law issues, please contact us or call us on 0207 7611 4848.

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