Divorce and the Family Business

If you are part of a family business you know how important it is to stop personal emotions affecting the company. Divorce can be a traumatic process for anyone but it is often worse in circumstances where spouses run a business together or where one spouse has an interest in a family business. If you are in this situation, then as part of the divorce you need to address the issue of money and separate the financial ties between you.

The law says that a family business will be taken into account as part of the assets on divorce in the same way as the family home and any other capital. When deciding how the assets will be split a number of factors are taken into account. The starting point is equality i.e. a 50/50 split, but each party has the opportunity to put forward arguments to move away from an equal split; for example, that they have made a larger contribution towards the business either through working in it or investing capital in it. However, the court recognises other types of contributions, so the role of the homemaker can be an equally important contribution. This means that a spouse is likely to be entitled to a share of the value of the business even if they have not worked in it.

If both parties work in the business it is rarely possible for them to continue to do so, and therefore a decision has to be made as to the future. Issues for the couple include whether there is any capital value to the business, whether the true value is found in the skills of the parties or whether it is simply a vehicle for producing income.

It is imperative to remember that the ongoing income from any business is likely to be important so selling it may not be the best option. In addition, if the business is producing sufficient income to support two separate households then a court would be reluctant to enforce a sale and end that income stream. Other options include transferring the business into the sole name of one of the parties with the other party receiving a larger share of other assets, such as the family home, to compensate them.

These are just a few of the issues to be considered. Each case is individual and anyone who has an interest in a family business, and is considering divorce, should seek legal advice as early as possible. A specialist solicitor can help you understand how the divorce process works and help get the best results for both you and the business.

There are also protective measures which can be taken if you run a family business and are considering marriage, in the form of a pre-nuptial agreement. Such agreements are still not legally binding but are being given increasing weight by the courts.

Published 04/03/2010. The author of this article is Vikki Martin