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Can you protect a family business from a divorce?

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The question “can you protect a family business from a divorce?” is a reasonable question to ask. After all, company lawyers and accountants will tell you that whist it can take several generations of hard work to build a family business into a thriving and highly successful business venture it only takes one divorce  to “kill the goose that lays the golden egg” and destroy a family business.

You may ask who, in their right minds, would “kill the goose” and stop those golden egg dividend payments that are the backbone of a family’s wealth. A messy and costly divorce can affect a business because of the court ordering the sale or transfer of shares or requiring a shareholder to raise a lump sum payment. Sometimes simply one shareholder and company director becoming distracted by a separation or divorce, especially when there are financial court proceedings, can affect the performance of a family business and reduce profitability.

The best London divorce solicitors advise that if a family business is affected by divorce it does not normally just affect the husband or wife. It can also affect company employees and their job security if a business owner makes economies to raise divorce monies to pay off a former spouse.

A divorce can also affect other shareholders who often think that they are immune to the divorce or separation of a fellow shareholder. Sometimes a shareholder thinks that they are protected from the potential ravages of a fellow shareholder’s divorce proceedings because they are a majority shareholder or because they have a shareholder agreement in place.  The best London divorce solicitors advise that the court can still order a valuation of a company by a forensic accountant even if the divorcing shareholder is a minority shareholder. Furthermore, the divorce court, in financial proceedings, can make orders in relation to the sale or transfers of shares even if there is a shareholders agreement in place.

Court proceedings involving a family business can easily get complicated and expensive. In some extreme cases, a family company has even been joined as a party to the financial court proceedings involving a husband and wife.

The top London divorce solicitors think it is very important for business owners to look at strategies to protect a family business on divorce, as part of their business planning. After all , most prudent business owners or their accountants or trusted advisors will plan for eventualities such as the retirement, ill-health or death of  shareholders and sadly a divorce  or separation falls within the same sort of “life events” category.

How can OTS Solicitors help?

If you need expert legal advice on how to protect a family business from a separation or divorce then the divorce a family law team at OTS Solicitors can help you.

For a confidential discussion on how OTS Solicitors can help you please call us on 0203 959 9123.

Protecting a family business from divorce

The best London divorce solicitors do not just advise on the best legal strategies on separation or divorce to achieve a speedy and fair financial settlement. A proactive London divorce solicitor will, if instructed at an early stage, also advise on the best means of protecting a family business from divorce

One obvious strategy is for a company shareholder to not get married. Many people do not realise that it is marriage that gives the right to make a claim against shares in a family business. In other words, if a spouse is not a shareholder in the business and plays no part in the company, he or she can still make a financial claim in divorce and financial court proceedings. The extent of those claims will depend on a range of factors set out in the Matrimonial Causes Act 1973, including the length of the marriage and the party’s needs.

Avoiding marriage is not a realistic option for many and not one that the best London family law solicitors would recommend but there are other options:

  • Signing a prenuptial agreement before the marriage; or
  • Signing a postnuptial agreement after the marriage; or
  • In the event of a separation or divorce not delaying in sorting out financial claims and negotiating a clean break separation agreement or financial court order to avoid future claims if a spouse then sets up a family business;
  • Carefully weighing up professional advice to employ a spouse in the company or to make him or her a shareholder in the company. This may be very effective and efficient tax advice but if you are concerned about a possible separation or divorce  may be counterproductive;
  • Reviewing any shareholder agreement and making sure that it is consistent with the terms of any prenuptial agreement or post nuptial agreement or sets out what should happen between shareholders if  one shareholder wants to sell or transfer his or her shares or how shares should be valued for the purposes of a sale or transfer of a minority shareholding;
  • Carefully considering how shares are held. Shares can be held in a discretionary trust or in other types of asset structure. That can take power and control of the shares away from the shareholder but can help protect shares from separation or divorce.

The best London divorce solicitors will tell you that none of the above strategies is fool proof. Currently, in the UK, prenuptial agreements and postnuptial agreements are not legally binding on a divorce court. However, if the agreement is draw up carefully by top London divorce solicitors it stands far more chance of a divorce court taking the contents of the agreement into account when making a financial court order.

When it comes to looking at strategies to help protect a family business from separation or divorce a collaborative approach should be taken. The best London divorce solicitors will work with the family business accountant, tax advisors and private client solicitor to work out the best strategy that meets a husband or wife's goals for efficient tax and inheritance planning whilst also looking at ways to best protect the family business from the potential consequences of a separation or divorce.

How can OTS Solicitors help?

Please call OTS Solicitors for pragmatic expert divorce and financial settlement advice on your options where you or your spouse own shares in a family business or if you require representation in financial court proceedings or help in drawing up a prenuptial or postnuptial agreement.

The OTS Solicitors divorce and family law team can be contacted on 0203 959 9123 for a confidential discussion about they can help you protect the family business. 

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