Dealing with divorcing couples where there is a business involved is a specialist area. At Sweeney Miller Law, we have experienced company and commercial experts who work alongside our family law team to ensure you receive the best outcome for both your company and personally.
First steps first
In most cases where a divorcing couple or one of the spouses owns a business, the first stage is to obtain a business valuation from a specialist forensic accountant who would be agreed by both parties. The expert would go through the accounts, assets, etc. including assessing any share valuations and whether drawdowns can be made, and in turn how this would affect the business.
So that the business can keep going and to enable both parties move on following the split, generally, the aim is to avoid your spouse from keeping any interest in the business. Each business and relationship is unique, so this may not always be the end goal for the splitting couple which is why we treat every case differently.
Impact of divorce on the business
If your spouse has not been involved in your family business, you will likely be concerned about sharing the family business in the settlement, you can be assured that this is generally rare unless the circumstances are extreme. As part of the divorce settlement process, we would assess all assets in the case and usually if there is enough capital from other assets, a share of the business can be avoided by offsetting any business value against those other assets.
That said, we do come across couples who are both actively involved in business together, and also situations where there is a ‘silent’ shareholder or director in the business and a share is necessary or sought as part of the divorce settlement. Where divorcing couples do share the business as part of the settlement, there are complex tax issues that need to be considered and expert advice taken.
Silent shareholders
Often, where a spouse is a silent shareholder, it is for legitimate tax purposes and they may have had limited or no involvement in the company. In these circumstances, it may be appropriate for the silent spouse to transfer their shares to the spouse who runs the business in exchange for a lump sum. If that happens, there are tax implications on transferring shares as there is a potential for a Capital Gains Tax liability to be triggered. We would therefore always recommend obtaining independent specialist tax advice on the transfer of an asset.
Working together in a business
Cases where couples have worked together in business are much more complex as there are many roles in the business that either side of the divorcing couple could be involved in. In turn, very difficult decisions need to be made regarding whether to continue with the business.
If the splitting couple do decide to continue with the business, we recommend that a shareholders’ agreement is drafted, if there is not one already in place. This is a formal legal agreement setting out each shareholders’ obligations, rights and protections, including relevant details about the management of the company, aimed at avoiding any future arguments.
For the benefit of the company, it is important to ensure that any business decisions do not become political and linked to the divorce. Ultimately, some splitting couples may decide that it is impossible to continue working together and one party buys the other’s shares, or they sell the business as a whole. This could be dependent on the age of the splitting couple, the value of the business and whether it is the best financial decision based on current market conditions.
Business as usual
We do also come across couples who both wish to carry on with the business but not with each other. This can be an extremely difficult decision as the business needs to continue to operate and thrive. In that situation, it is important to examine what aspects of the business each party deals with and see if the business can continue. The courts can make the decision that it is better for the parties to separate their business if it is clearly unworkable. In these situations, it may be beneficial to consider mediation at an early stage to try and reach an early resolution rather than potentially hindering the business.
Commenting on the challenges of divorcing couples where a business is involved, Head of Sweeney Miller Law’s Family Team, Rebecca Cresswell said: “Clearly, each business and separating couple is unique and have different outlooks on their future endeavours. At Sweeney Miller Law, we deal with each client on a personal basis so that we can work towards reaching those goals. We also have excellent and longstanding relationships with accountancy, financial, tax and pension experts who can advise on the valuation and division of assets, including businesses, following a split ensuring that pragmatic and sensible solutions are quickly achieved.”
Expert team
At Sweeney Miller Law, as well as an experienced Company and Commercial team to assist in dealing with your company on divorce, we have a large Conveyancing team that can help with the sale or transfer of the family home. We also have an Estate Planning team that can help you create a Will to reflect your new wishes following divorce, including dealing with company matters such as shares.
We help clients from start to finish with their divorce and financial settlement and offer a free initial no obligation 30-minute consultation.