Divorce is never easy, but for business owners it carries an additional layer of complexity. Alongside the personal and emotional impact, you may face the possibility that your business, often your most valuable asset, could be drawn into the financial settlement. Tina Day, Senior Associate in our Family Law team, shares her guidance on how divorce can affect your business and the steps you can take to protect it, giving you clarity, confidence and practical strategies so that you can plan ahead and safeguard both your livelihood and your legacy.
Why businesses are at risk in divorce?
Many business owners assume that because a company is in their name, it will be protected. In reality, under the laws of England and Wales, a business is usually treated as a matrimonial asset if it was established or built up during the marriage. Even if you set up your business before you married, its growth in value during the marriage may be taken into account in the divorce settlement.
This means your business could be subject to:
- Court-ordered buy-outs if your spouse is awarded a share.
- Disputed valuations which can quickly become costly and contentious.
- Forced sales in the most extreme cases.
- Day-to-day disruption as the legal process unfolds.
- Employment complications if your spouse is employed by the business.
- Financial insecurity that could impact not only you, but also your employees and clients.
Recognising these risks early is the first step towards protecting your hard work.
Protecting your business before marriage
One of the most effective ways to protect your business from the impact of divorce is to plan ahead. While it may feel uncomfortable to think about divorce at the start of a marriage, it is no different from taking out an insurance policy, protecting against "what if" scenarios.
Your main options would include:
- Pre-nuptial agreements: These agreements can specifically ring-fence your business interests. While not automatically binding, the Courts in England and Wales increasingly give weight to them, provided they are fair and properly drafted.
- Business structure: Consider whether a limited company, partnership or trust structure is the best way to separate your personal and business interests. The right structure can provide additional layers of protection.
Safeguarding your business during marriage
If you are already married, there are still steps you can take to limit risk:
- Post-nuptial agreements: Like pre-nuptial agreements, these can set out clearly what should happen to the business if the marriage ends.
- Shareholders' Agreements: If you own the business with other parties, make sure your agreements include provisions for what happens if one shareholder divorces. This protects not only you but also your business partners.
- Maintaining boundaries: Keeping business and personal finances separate can help reduce complications later. Avoid paying household bills directly from business accounts where possible.
What happens to your business in divorce proceedings?
When divorce proceedings begin, the Court will look at the total financial picture. This includes property, pensions, savings, and your business. Valuing a business is rarely straightforward, and disagreements often arise.
Before proceeding, you should consider the following:
- Valuation disputes: Each side may obtain their own expert valuation, leading to conflicting figures. Agreeing a single joint expert can save time, cost and stress.
- Liquidity: A profitable business on paper may not have cash available to fund a settlement. This is particularly important in asset-rich, cash-poor companies.
- Impact on employees: Legal disputes can create uncertainty, and protecting staff confidence is vital to business continuity.
- Settlement structures: Courts may award a spouse a larger share of non-business assets, such as property or savings, to preserve the business. However, this depends on the overall financial circumstances.
Practical steps to protect your business during divorce
If you are facing divorce, there are immediate steps you can take to protect your business interests:
- Engage a specialist divorce lawyer early. The sooner you seek advice, the more options you will have.
- Explore Non-Court Dispute Resolution (NCDR) methods such as Family Mediation, collaborative law or Resolution Together, which can help you reach an agreement without the disruption and publicity of a Court battle.
- Alongside your divorce lawyer, involve a financial planner, accountant, and if needed, a business adviser. A therapist or coach can also help you manage the emotional strain, enabling you to make clearer decisions.
- Keeping business partners informed, without breaching confidentiality, helps protect the stability of the company.
- If your spouse is employed in the business, be prepared to handle potential employment law implications. Employee morale and security should also be a priority.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
