Managing a Business if the Directors Divorce

The immense pressure that businesses are under with the double impact of the potential no-deal Brexit and the effects of the coronavirus pandemic is often most keenly felt when a husband and wife work within their own business.  Stress in a marriage is considerably amplified when a business is under pressure and many marriages struggle to survive under the current unprecedented challenges.  Divorce is nearly always a distressing process and if a business is involved fairly dividing the assets can become complex.

The courts must consider the assets and liabilities of both parties when considering their financial needs and responsibilities and how the assets of the marriage are divided.  Depending on the length of the marriage a family business, whether the business was inherited or incorporated during the marriage, is can be considered an asset of the marriage.  There may be other shareholders and also children of the marriage that must be considered.  Often inherited businesses, particularly small shops or farms are simply passed on down the generations with very little formal documentation. 

Daniel Theron, a partner, commented “an inherited business, as with any business, should ideally be protected with a legally drafted agreement setting out the how the shares in the business should be held and by whom” she also pointed out “there is no set procedure as to how a family business should be dealt with. The court will be mindful of the interests of any other shareholders in the business and is unlikely to order the business to be sold if such an action would impact negatively on them.”

The court will make a final decision based on a number of factors, the following being the main considerations:

  • Does the business have tangible assets or capital value?
  • Who owns the business?
  • Who runs the business?
  • What income does the business generate?
  • Can capital be taken out of the business?
  • Can a loan be taken out against the business assets?
  • Are the needs of the couple and any children able to be met from the income generated?
  • The duration of the marriage

The family lawyers in Giambrone’s family law team strongly urge divorcing couples to use mediation to come to the court with a workable agreement already decided between them.  The courts are no longer patient with couples who prove to be intransigent when attempting to come to a settlement.  It has been known for couples to be told to only come back to the court when they are in agreement.  Also, where there is a business it is considered preferable to keep the business afloat, where possible, to avoid the need for the business to be valued, which is generally undertaken by a forensic accountant appointed as a joint expert.   

Unravelling a married couple's joint assets and trying to divide them amicably is a challenging task.  All parties are best served by the couple concerned deciding on how this can be achieved.  In most cases, the decision to divorce is not taken lightly and when a couple reach the position where they are planning to divorce it is best for all parties to attempt to make the process as straightforward as possible.

For more information about divorce and a family business please click here