Fastest 50: How to handle divorce issue in a family business

More than 80 per cent of all private sector firms in the UK are family businesses and while most of them are small firms, more than one in 10 large firms in the UK are also owned by families. They employ an estimated 12 million people, representing more than 45 per cent of all private sector employment.

In a family business, conflict can arise from any direction and navigating the divorce process to ensure parties keep assets and finances intact can be complex.

Shareholder agreements

Planning is essential. In some cases, shareholder agreements can help ensure business assets stay in family hands. A shareholders’ agreement is a contract between shareholders in the company which can provide a right of repurchase should shares end up with a former spouse. It can also include provision that in the event of a divorce, a shareholder’s spouse is not entitled to shares in the company.

Regardless of the ownership of shares in the family business, in a divorce scenario, the court has a broad discretion to divide marital assets, which could include the family business.

A shareholding in a family business would be treated by the court as part of the matrimonial assets to be divided upon divorce. However, unlike other matrimonial assets, such as bank savings or the matrimonial home, the division of a shareholding, which in many cases can be the major asset of the marriage, would have important legal implications not just for the divorcing couple, but also for employees of the company, as well as other shareholders and directors.

Nuptial agreements

Nuptial agreements are one of the devices available to protect family business assets in the event of a divorce. They are legal agreements made between two spouses either before the marriage has taken place or during the marriage and set out how they wish their assets to be divided between them if they were to separate or divorce.

Trusts

Parents who own a controlling stake in the family business can also make use of trusts to give their children a stake in the business without relinquishing control. A trust may be structured in such a way as to protect family business assets should one of the children divorce, as well as achieving tax minimisation and estate planning.

It is vital you obtain specialist legal advice. The family team at Ward Hadaway are used to advising business clients on issues arising from the breakdown of a marriage or relationship so business interests and assets can be protected. We work with our Private Client and Company/Commercial departments to provide all-round advice.

For more information on the issues raised by this article, please contact Andrea at [email protected] or on 0113 205 6625.