27th January, 2021 by Justine Flack
2020 was a challenging year for many businesses, there has also been media speculation about the challenges to marriages as a result of lockdown and how the divorce rate may increase. So throw a business into the financial mix of a marriage breakdown and things can become more complicated on both fronts.
A divorce which involves a business needs to be handled correctly. Most people realise it will need to be valued so that the shareholdings of the parties can be established. However, this is often the first complication as there are various ways to value businesses depending on their nature.
Thereafter consideration has to be given to the transfer of any shares, tax issues that might arise, liquidity if a capital payment is to be made, the impact on employment and income as well as how the business assets might be offset against other matrimonial assets. With this there needs to be consideration in terms of balancing the risk associated with assets; shares in a business are generally considered to be of higher risk than say, a house. This is relevant as a fair outcome should be achieved.
With this in mind it may be worth thinking of steps which can minimise the risk to the business before a divorce occurs. Clear legal documents can make it easier to unravel business interests as fairly as possible and considering the impact of divorce when setting up or making changes in the business can prevent future problems from arising. Here are some points to consider:
If the worst does happen and your marriage comes to an end, instruct lawyers and accountants early to assist you. Also try and choose those who focus on resolution rather than dispute because that will make the process emotionally easier and more cost-effective. You may want to think about alternative forms of dispute resolution such as Collaborative Law or mediation as an alternative to court.
The Family Court will try and avoid an outcome which causes the sale of a business but it has to ensure that each party has the resources to move on. It may therefore be the only solution if there is no other way of settling matters.
It will also take a dim view of those who try and hide assets or appear to have gifted them away or liquidated them at a lower value ahead of a divorce. If you do this you may face cost penalties and the court can reverse the transaction. If you fear your spouse may be behaving in this manner early advice is crucial.
To discuss how to protect your business from divorce, or any other family matter, please email [javascript protected email address] or call Justine on 0116 2473564.
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