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Dealing with the family business upon divorce

Couples face many fears when dealing with divorce such as where they will live, what will happen to the children and how will they afford to live by themselves. Those whose livelihoods are dependent on a family business are faced with the further dilemma of what will happen to it.

There are obvious difficulties should a couple try to maintain a jointly owned business when their relationship is over, especially if the relationship is fractious. It is better therefore to look for a way for one or the other to take on the business independently.

There are instances when that might not be a sensible or indeed a feasible option. Furthermore, even if it is agreed that the family business is transferred to the other, the Court can refuse to transfer a business if it feels it is impossible to be clear about the value and therefore ensure fairness.  In this situation, practical solutions will be required to ensure the successful continuation of the business, for example the creation of “B” Shares creating a dividend but no responsibility for the day to day running of the business.

The key starting point when dealing with a matrimonial asset such as the family business is ascertaining its value.  In most cases a suitably qualified accountant will be required to carry out a business valuation. A valuation is fundamental as the Court will need to ascertain what the matrimonial assets amount to when considering an appropriate settlement.

Should a business already be owned and run by one of the couple, or should a jointly owned business be transferred to one of the spouses, then the value of the retained business can be offset against other assets. This can be achieved in a number of ways such as by way of a lump sum, or by payment of regular maintenance. It may be possible to achieve a full capital clean break further down line if there are funds to capitalise maintenance, for example should the business be sold.  

There are also ways of protecting business assets acquired before the parties marry, for example by way of a pre-nuptial agreement.  The Court’s are now increasingly recognising the existence and importance of pre-nuptial agreements where they have been carefully prepared with the benefit of legal advice, where there has been full financial disclosure and where the parties have freely entered in to the agreement and fully understand its terms. As long as the agreement is not adversely unfair and makes adequate provision for any children of the family, the Court is generally keen on upholding agreements made between the parties.

Lupton Fawcett has expertise in dealing with family businesses upon divorce and also the protection of pre acquired business and capital assets.

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