Protecting your family business

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Protecting your family business

 

In the unfortunate event of marriage breakdown, there comes a time when the separating couple must deal with the division of their matrimonial assets. If they cannot agree a way forward amicably, their assets will fall to the mercy of the family courts. Assets include any interests either or both have in a business, which can add to the complexity.

 

Where a business was established long before the marriage, or has grown significantly post-separation as a result of only one party’s efforts, the idea that it may be divided within divorce proceedings will often give rise to resentment and even anger.

 

It doesn’t get any easier when a business has been built up during the course of the marriage by both spouses. Should the business be sold? Or, will one party retain the business and the other have to walk away?

 

In either case, the court will decide how the value of the business should be incorporated into the overall division of the matrimonial assets. The court’s powers in this regard are far-reaching and can involve orders for shares to be transferred or sold, or for lump sum payments to be made.

 

Over the last 12 months there have been a number of high profile divorce cases where the decision on business assets has hit the headlines. For example, the recent case of Drake and Drake, where the husband, who earned his first Michelin star at the restaurant which he and his wife opened together 12 years ago, must now walk away from the business, which will be retained by his wife.

 

A few months prior, we also learnt of the divorce of one of the founders of online fashion retailer Asos. The wife had no involvement in the business which the husband established 4 years prior to their marriage and which grew from a net worth of approximately £12m to £3bn at the time of the couple’s separation. A bitter battle ensued as the couple could not agree on how much the wife should receive in the divorce settlement. In the end, the court ruled that the wife should be paid £70million (approximately one third of the husband’s wealth). In order to achieve this, the husband has now taken steps to sell some of his shares in the business.

 

How to avoid putting your business at risk

Most business owners think that the existence of shareholder agreements will be sufficient to protect the business in the event of divorce proceedings, but this is not the case. A nuptial agreement, which may be entered into either before or after the wedding, may provide a business owner with the security, clarity and protection they need to protect their business assets. These legal agreements are now largely recognised by the court when considering how matrimonial assets should be divided.

 

For more information please contact Gail Brooks, Associate, Private Client - Family.

Gail Brooks

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Published: 1 Sep 2016


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