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How do I protect my Business during Divorce?

You can take steps to protect your business in the event of Divorce, although Divorce Courts will look carefully at all financial aspects of both parties and there is certainly no magical way in which business or indeed another asset can be protected.

Your business could be a Limited Company, a Partnership or Sole trader, whichever way your business is set up the Divorce Court will consider it.

Useful steps to consider are detailed below:

A Prenuptial Agreement

You could enter into a Prenuptial Agreement and that could include terms that specifically exclude your business from any claims by your Spouse.   Prenuptial Agreements are not yet legally binding in England and Wales, but during recent years Courts have started to consider them more often.

A Prenuptial Agreement needs professionally drafting and there are various requirements to make a Prenuptial Agreement potentially valid. The most important point is that it must provide sensible provision for the other Spouse, any Prenuptial Agreement that provides the other Spouse with little or nothing will not be upheld by a Court.

It is also vital that both parties are fully aware of the other party’s financial situation prior to entering into a Prenuptial Agreement, and this is dealt with by both parties providing financial disclosure to the other. Both parties also need independent legal advice upon the agreement, and this is recorded by both lawyers signing the agreement to confirm that they have advised.

Finally any agreement needs to be completed in good time before the marriage. Any agreement completed only weeks before the marriage, is unlikely to be upheld by the Court.  In fact any Agreement will need to be finalised and signed at least 28 days before the marriage for it be valid otherwise one of the parties could allege that they have been pressured into signing the agreement.

A Postnuptial Agreement

If you are already married then you could enter into a Postnuptial Agreement which is similar to a Prenuptial Agreement but entered into after marriage, again this needs drafting by a professional.

If you wish to protect your business from claims by your Spouse in the event of Divorce, it is not advisable to appoint your Spouse as Director in the business or give them any shares in the business. It is also inadvisable to secure business debts against the family home.

The Court will consider each Divorce case on an individual basis.  If the business is a family business which was started before the marriage, you could argue that the business is not a matrimonial asset, (arguments regarding if assets are matrimonial or non-matrimonial is a subject in itself).  The Court will also consider whether or not your Spouse has contributed towards the business.

The valuation of any business can be difficult, and it may be necessary to instruct an expert, often an accountant to provide a valuation.

Many business owners are concerned that the Divorce Court could order the sale of the business, this is rare, and instead of the Court awarding a capital sum to the other Spouse that could only be raised by sale of the business, the Court could well order maintenance payments. The Court also has power to order transfer of company shares within Divorce proceedings.

This is a specialist area of Divorce Law and it is important that you receive specialist advice either in relation to Prenuptial Agreements or Postnuptial Agreements, or in the event of Divorce Proceedings taking place.  Contact us to arrange a consultation on 01302 349 480.

Please note that this article is only intended as a guide as there may be tax and investment implications in relation to a business which may require detailed advice from a financial adviser. 

Richard Johnson  Chartered Legal Executive

11.05.22

 

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