Managing a family business through divorce and asset division

The impact of divorce on family businesses

Divorce doesn’t have to end a couple’s working relationship. Where both people are invested in the work they do and there’s a desire to keep the business going, it’s perfectly possible for that to happen.

Equally, where one person isn’t involved day-to-day, or where it’s a business involving generations of one side of the family, that business could carry on as it is – with appropriate post-separation legal safeguards in place for all involved.

Options for the family business after divorce

As with other assets – the family home, investments, money in the bank, pensions – a family business should be taken into account during financial discussions on divorce.

The nature and value of each partner’s interest in the business are major considerations, along with the way in which that value should be provided for in the divorce settlement. A professional valuation will usually need to be sought.

And questions around the business’s financial status, and the organisational implications of potential settlements, considered.

The idea of a family business being unpicked in this way can be unsettling.

There may be concerns that a divorce settlement could fundamentally damage the business, put employees’ jobs at risk or even destabilise the family’s financial future. This is understandable when couples divorce and uncertainty about the future is always unsettling.

Negotiations should take place between solicitors and, if an agreement cannot be reached, the court will decide about what should happen to the business and each person’s interest in it.

It may be decided (or the court may order) that the business should be sold, although that doesn’t tend to happen very often, given a viable business is an important income source for families. Another possibility is that one partner buys the other out.

There are also different types of arrangements that can be made in respect of each person’s shareholding. For example, one person may want to retain some interest in the business, while the other might want to keep them at arm’s length when it comes to day-to-day involvement in the business or decisions about its structure or direction.

Dividing business assets in a divorce

The aim in every high net worth divorce settlement is to divide assets fairly. For those couples involved in a family business, the additional layers of complexity this brings can be stressful. As family lawyers we specialise in getting the best arrangement in place for our clients.

And we’re able to call on the expertise of our employment law colleagues to advise on employee-related aspects of a family business, as well as those in our dispute resolution team who can help clients avoid, and resolve, issues between directors, shareholders and partners.

It is always important to obtain specialist tax advice when deciding how to deal with business assets.

Legal protections for family businesses

We also help clients put in place pre-emptive measures to protect themselves and their business from the negative aspects of divorce.

A prenuptial agreement can be an effective way of setting out what should happen not just to personal assets but also to the family business.

And if you didn’t have one of these before getting married, a postnuptial agreement can offer the same protection.

It may also be worth looking at trusts as a way of retaining the family business within ‘the family’, particularly in the case of a generational business that has been expected to continue well into the future. Our wills and inheritance team is on hand to help with those aspects.