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Getting Divorced Where There is a Family Business

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Getting divorced is difficult enough but especially so where you and your husband or wife are working together in a family business. Our family law solicitors take a look at the issues you need to consider when divorcing with a family business.

Online and London Family Law Solicitors

For specialist family law advice call the expert London family lawyers at OTS Solicitors on 0203 959 9123 or complete our online enquiry form .

The family business and financial court orders

If you are in business, it is an added complexity when you get divorced. That is the case whether you are a company director in a limited company, partner in a business or sole trader and whether or not your husband or wife is a fellow director or partner or employee or is simply reliant on the income derived from the business to help meet the mortgage and household outgoings.

Some divorcing couples assume that they need a divorce solicitor to sort out their divorce financial settlement and a corporate lawyer to resolve what should happen to the family business with separate family law and company law court proceedings. That isn’t the case. In divorce financial settlement proceedings, the family court has the power to make orders relating to a family business. Those orders can include:

  • An order that the family business is valued by a single joint expert appointed by the court
  • An order for financial disclosure of additional family business documents as part of a questionnaire responses. For example, you may want a shadow accountant to review entries in the directors loan account and ask questions in a questionnaire document
  • An order for the sale of the family business
  • An order for the sale or transfer of shares in a family business
  • An order for the payment of a lump sum that necessitates the sale of shares in the family business
  • An order for the payment of spousal maintenance based on the income derived by one spouse from the family business

Divorcing and staying in business

Family law solicitors find that it isn’t unusual for a divorcing couple to be desperate to separate but to want to stay in business together. If the couple have thought through the idea and know that working with their ex won't be a problem, or have a clear joint exit plan in mind so they can sell the whole business as a going concern within an agreed period, then staying in business together can work for some families.

A family law solicitor will still want to check out the overall divorce financial settlement to make sure it is fair. For example, if a wife only owns a 10% shareholding in the company, and that shareholding isn’t going to be increased as part of the divorce financial settlement, but the husband and wife have agreed that the husband will keep his 90% shareholding and will get 50% of all the non-business assets, such as equity in the family home, the agreement seems a bit skewed. However, there may be a good reason, such as the husband’s family set up the company years ago and the divorce financial settlement more than meets the wife's reasonable needs.

If a couple are staying in business together, they need a financial court order from the family court as well as a new shareholder agreement or partnership agreement. These 2 family and business documents provide protection and security. Without them, the wife as a minority shareholder would be in a vulnerable position. For example, without a right to veto the taking on of future employees, the husband could employ his new girlfriend on a salary of £200,000 a year. Alternatively, the husband could change the dividend policy so the wife no longer received the dividend income she was expecting. Disaster could be averted if the wife’s spousal maintenance claim was preserved in case dividend income was deliberately made to fall in a situation where there was no financial  need for a change in divided policy.

Although couples who stay in business together trust one another, it is just prudent to have paperwork in place that is there if things do not go as planned or if one spouse meets a new partner who tries to muscle in, resulting in a loss of trust.

If you are divorcing but staying in business together and need your specialist legal paperwork sorting out then call the family lawyers at OTS Solicitors on 0203 959 9123.

Divorce, the family business, and getting a fair divorce financial settlement

Whether you are in business with your husband or wife, or an employee of the company, you may prefer to ‘go your separate ways’, involving you retaining the business or transferring or selling your shares.

In divorces involving a family business, whether it is a London  restaurant chain, plumbers merchants, retail unit or tech company, one of the key considerations is the value of the family business. The company accountant may have given a figure to include as part of the Form E financial disclosure but there is often a concern that the accountant has not looked at the business as forensically as they would have if they were not the longstanding company accountant with a good working relationship with either the husband or wife. That’s not always the case as a company accountant may know the company strengths the best and give an accurate estimate.

If you are concerned about getting a fair divorce financial settlement where there is a family business you can:

  • Ask questions about the family business in a questionnaire as part of the financial disclosure process. The family court will review the questionnaire and decide if the questions are proportionate to the issues and if they should be answered by your husband or wife. If the company accounts are complicated you could ask a shadow accountant to help your family solicitor prepare the questionnaire so all the right questions are asked. For example, the company accounts may reveal a sharp drop in turnover that affects the value of the company shares. Is that because the business is seasonal in nature or is your husband or wife deliberately trying to create a situation where turnover is down by deferring invoicing? Depending on the nature of the business and sector, there are many other questions to be asked in situations where you fear that the families main asset is being deliberately undervalued
  • Ask the court to order a valuation of the company. The family court can order a company valuation by a forensic accountant who is appointed as a single joint expert. The expert will be sent an agreed letter of instruction so their remit is clear. For example, as well as asking about the share value, the expert may also be asked about the tax implications of a sale or transfer of shares or whether the current level of dividend income is sustainable based on the last few years of company accounts.

Our family lawyers will work with you, as well as any forensic or tax accountants, to help you reach a fair divorce financial settlement. If you need help with your divorce financial settlement or with financial court proceedings call us on 0203 959 9123.

Divorce, the family business and employment law

Where there is a family business it is fairly common to find that both a husband and wife are employees of the company even though only one of them may have a managerial or active role in the business. If you are named as an employee on the books of the company you have potential employment law rights as well as family law remedies. You should therefore not resign until you have taken family and employment advice. If your spouse sacks you then you may have an employment tribunal claim as well as a divorce financial settlement claim for spousal maintenance and other orders.

If you are named as a company director or secretary, and you know you want to exit the company because of your divorce, it is important that any divorce financial court order contains indemnities to provide you with protection from future company claims or HMRC claims. Your family law solicitor can sort this out for you.

Will the divorce court order the sale of a family business?

The divorce court has the power to order the sale of a business owned by a husband or wife. The court rarely takes this route where one party wants to continue with the company. There are normally options to allow this to happen. For example, the other spouse could get all the non-business assets or the spouse with the shares in the company could raise a cash lump sum by borrowing against the value of his or her shares.

Where you are getting divorced and there is a family business involved, however large or small, you need specialist family lawyers to guide you through your options and help you achieve the best divorce financial settlement for you and your family.

Online and London Family Law Solicitors

For divorce financial settlement legal advice call the expert London family lawyers at OTS Solicitors on 0203 959 9123 or complete our online enquiry form .

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