Considering the risk of divorce on your business is vital to ensure that the right measures are taken to protect your business against loss.
Whilst it might not sound like the most romantic of topics, taking precautions now and planning how finances or assets will be handled and protected after a marriage breakdown can keep the business running smoothly and ensure the outcome on a divorce is that which you and your partner want.
Set up a Trust
You may be able to help protect business shares for future generations by placing them into a trust; specialist legal advice is essential as the structure of the trust will have a large impact on how it is treated by family courts.
The articles and/or shareholders agreement can restrict who is entitled to hold shares and to whom they can be transferred. This may prevent a transfer to a spouse on divorce or dissolution. It may also affect their value.
The court may be reluctant to treat the business as part of the matrimonial pot if ownership is shared with wider family members, as the court would always be concerned not to prejudice the interests of the other owners.
The greater the liquidity of your business, the more vulnerable it will be to claims against it; a lack of liquidity will often reduce the money that can be raised from it to fund a settlement. However if liquidity is a problem it might be more likely that the settlement will need to be funded over a number of years instead.
A prenuptial agreement is the most effective means of protecting your business from divorce claims.
A pre-nup is a written document which states how the couple wish to handle their financial affairs or business assets should the marriage breakdown; couples can also sign a post-nup agreement if they wish to set out the terms after they have married.
Such agreements are usually upheld in court as long as they are not unfair and follow set guidelines; however they are not currently legally binding.
Don’t bring work home
It’s often best to avoid hiring spouses within the business, as this can create employment law issues should you find it difficult to continue a good working relationship following a divorce. Allowing a spouse to acquire shareholdings in the business can create further issues and should be avoided as well.
Don’t use the business account for family expenses, as the court may assume that this is to continue in the future and attribute more income to the former spouse in the settlement. Keeping business and personal spending or bank accounts separate can help keep the business separate to matrimonial assets during a divorce.
Vicki McLynn is a principle lawyer in the Family team at Pannone (Part of Slater & Gordon)
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