What can be done to protect the family business?
Various steps can be taken to limit a family business’ exposure on divorce. The specific circumstances will determine which are appropriate and in our experience any advice taken should be across the board, combining asset protection with financial and taxation advice to ensure that the steps being taken meet the family’s objectives.
- Pre or post nuptial agreements - It is possible for a couple to enter into an agreement either before or after they marry with the aim of protecting the family business, often by ring fencing any interest in the business from a financial settlement. These agreements can also be prepared in conjunction with the passing on of shares or business assets to the next generation.
- Controlling the ownership of shares - Family shareholders of a company can establish a policy that shares in the family business can only be held by members of the original family, not their spouses, and that if such shares are required to be sold they must be offered to original family members only. The company’s articles of association could also provide that shares transferred to a spouse should be bought back by the business in the event of a divorce. The court will always retain discretion to make orders over any shareholding owned by either of the divorcing couple but at the very least such provisions may be influential.
- Introduce different classification of shares
Involving Trustees - Instead of transferring shares outright to spouses or family members, consider transferring them to trustees to hold for their benefit. This cannot be guaranteed to take them out of account on divorce, but adds a further layer between the interest in the family business and the divorcing spouse and will make a claim by them much harder.