Divorce and the Family Business - How to protect your assets

The New Year is often a time for review and frequently reminds an individual that another year in an unsuccessful marriage has passed by, triggering an action to divorce.  The long awaited reforms under the Divorce, Dissolution and Separation Act 2020    introducing the “no fault” divorce has resulted in a rise in applications for divorce according to the latest statistics from The National Statistics of the Family Court.  

Following the implementation of the Divorce, Dissolution and Separation Act 2020, the process to obtain a divorce or dissolution has become much more straightforward. No grounds need to be illustrated, whether applied jointly or separately by the parties. As a consequence, the scope in challenging a divorce has been reduced. However, the question of how the child and financial arrangements are dealt with remain the same. 

Most married couples will have marital assets that must be divided between them on divorce. Often these assets are complicated and there may not initially be any agreement between the couple on how to resolve their division.

Daniel Theron, a partner, points out “a business asset does not mean simply having an interest in a business and it is entirely different to that of savings or a property portfolio.  A business asset inevitably carries a risk and the question of who had the beneficial ownership of the business must be clearly established.”  Daniel further commented “Lord Sumption, a former Supreme Court judge, pointed out that a company is a legal entity and that company assets cannot be redeployed to the other party in a divorce until entitlement has been clearly shown.”

What are considered to be marital assets?

Marital assets are assets that are acquired during the course of the marriage or an existing asset. This can include a family business in the form of a limited company, sole trader or a partnership, even if it was founded prior to the marriage by one party without the involvement of the other party. In some instances, it may be founded jointly by the couple but one party was not actively involved in the running and development of the business. Regardless of the circumstances, the interest held in the business must be taken into account when considering the overall marital assets.

The involvement of a family business can raise considerable risks and disputes involving other equity partners that can be complex, if a negotiated settlement cannot be reached. Family business often poses the unique issue that there are complex inter-personal relationships which mean discussions around the division of an interest in the business can cause a great deal of argument and stress.

Inherited assets and gifts can also be considered as marital assets.  The courts will consider the needs of both parties, as well as when the asset was received in relation to the length of the marriage.  In the case of Miller –v- McFarlane  Baroness Hale observed that “the importance of the source of the assets will diminish over time.”  Meaning that the asset becomes a mutual asset within the marriage.

How can you protect your business from the consequences of divorce

Pre-nuptial Agreement

Whilst it can be an uncomfortable idea to discuss, a pre-nuptial agreement may be one of the best ways of defining how both parties perceive the way the family business should be dealt with should there be a divorce.  A pre-nuptial agreement has weight and its terms are considered on provision that the parties freely entered into the agreement and that there was no coercion to agree to the terms.

Partnership Agreement

Incorporating a clause in a partnership agreement that sets out the provisions in relation to the business in the event that one of the principals is facing a divorce.  Also, drafting bespoke articles together with a shareholders agreement geared to outlining the processes for dealing with the shares of the divorcing shareholder.

Negotiating a Financial Settlement

Every effort should be made to come to an amicable financial agreement following divorce through a series of calm focussed meetings with your former spouse and professional advisors.  Prolonged acrimonious negotiations or giving up the attempt to come to an agreement on the financial arrangements and handing the decision to the court will, almost certainly, significantly erode the marital assets and can be ruinous to the business you are trying to save.

A Consent Order  

Divorcing couples are often under the impression that once the divorce has been obtained all financial ties and claims are severed, this is not the case, a former spouse is entitled to make a claim against your money or assets at any time until such time as they re-marry.

There are many reasons a further claim may be brought

  • The circumstances of either or both parties have changed
  • The belief that the original agreement is unfair following a re-evaluation of the initial agreement
  • The belief that the original agreement was rushed and subject to unreasonable pressure
  • A change in the financial status whereby one party inherits a significant amount or their earnings substantially increase and the other party believes that they are entitled to a share

In order to completely sever any financial responsibilities or entitlements, once all parties agree on the financial arrangements then it is essential to obtain a Consent Order, a document which will reduce the prospect of a former spouse returning at a later stage to make a further claim against your assets.

Giambrone & Partners’ family lawyers have a wealth of experience in protecting the assets enshrined in a business and negotiating acceptable fair settlements for both sides in a divorce.  You can be assured that our lawyers’ outstanding legal minds will shelter and protect your hard won family business.   

Daniel Theron, advises on litigation in family law, employment, cross-border debt recovery and defamation.  Daniel has considerable expertiseA picture of Daniel Theron in contentious cross-border family law, including complex financial arrangements and enjoys a high level of success in both debt recovery and employment law. 

Daniel enjoys a reputation of being meticulous in his analysis of the merits of a matter and tenacious in his pursuit of a successful outcome for clients.  He frequently impressively navigates challenging situations culminating in an excellent level of achievement, in excess of all expectations.

If you need guidance as to how to safeguard your business in the event of divorce please contact Daniel’s clerk Sam Groom on SG@giambronelaw.com or please click here