January 10, 2017

When divorce becomes a business affair

When divorce becomes a business affair

Assets and income are two of the main negotiating points on divorce which is why business owners who fear their marriages may be in jeopardy are being urged to tread carefully.

The warning comes from Victoria Emens in the Family team, who says she has seen companies put at risk because one or both parties haven’t considered the impact their divorce may have on their businesses.

Here are her tips for business owners looking to protect their interests at a time of year notorious for marriage breakdowns.

1. Be realistic

It’s unlikely that you’ll be able to exclude your business interests from the financial discussions arising out of your divorce. Any business interests and the value contained in those interests can usually be brought into the “pot” of matrimonial assets on divorce.

2. Don’t panic!

Courts try and avoid a sale of a business unless it’s really impossible to achieve a fair outcome without doing so. It’s extremely rare for that to be required, particularly if the business isn’t only owned by you. If the reality is that the business is a means of you generating income rather than a capital asset then the courts recognise that selling the business would achieve nothing positive and would cut off your income.

3. Take advice from a specialist

How businesses are dealt with on divorce can be a complex area. While self help may seem attractive, if it goes wrong the legal costs involved in sorting out a muddle are likely to be far more than they would have been to get it done properly in the first place. Make sure that you’re working with an experienced specialist family lawyer who is used to working with clients who are business owners. Try and ensure that your family lawyer is part of a firm with strong corporate and commercial teams as their involvement and support may well be a key part of the work needed.

4. Talk to your business partners

If you’re not the sole owner of the business then your business partners or co-owners need to know that you’re going to be involved in financial discussions which will inevitably involve the business. Make sure that the company accountants also know the position as you will almost certainly need them to produce information as part of the discussions.

5. Be prepared

Your solicitor will need to know a great deal of detailed information about the business. The more you can put together in advance the less time and money you’ll spend while your solicitor gets the detailed picture of your business interests. When was the business set up and by whom? Who else is involved? What benefits do you (and any other business owners) get from the business? What are the strengths and weaknesses of the business? Does it have a capital value or is it in reality simply a vehicle for generating income? What are your plans for the business? Is it something you’re developing to sell, is it a venture that you would propose to sell when you retire or is there a succession plan amongst the business owners or other family members?

6. Be honest

We all know that the best of businesses can have bad times as well as good. However, if a business has been extremely profitable for many years even in tough economic times, it’s unlikely that anyone is going to take seriously a suggestion that it has gone rapidly downhill at exactly the same time as you have become involved in a divorce. If you try and paint a picture that clearly isn’t realistic, all you’re going to do is arouse suspicion and you may end up incurring the substantial costs of a business valuation that might otherwise have been avoided.

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