For business owners, the complications that a divorce entails will often reach well beyond maintenance arrangements and parental responsibilities. Many individuals will expect to share their property and other personal assets with their spouse in the event of their divorce, however, they are often surprised to discover their business interests are also within the scope of the family court.
What power does the family court have?
Even if a spouse has little or no day-to-day involvement, the family court still has wide ranging powers to make orders in relation to the business. Any shares owned in a limited company by either party constitute property and the court may order their transfer to the other spouse.
The court may also order the sale of the shares, but this will depend on the circumstances of the case and if this is the main source of family income, this may not be the most appropriate solution. Broadly speaking, the family court does not have the power to deal with shares owned by a company. However, in 2013 the Supreme Court ruled that in rare circumstances it can.
How to protect your business
Given the family court’s far reaching powers, it is imperative that business owners take steps in advance to protect their assets.We strongly advise that individuals considering marriage (and who wish to preserve their wealth in the event of a marriage breakdown) enter into a prenuptial or postnuptial agreement.
Although the courts are not bound to uphold the terms of a prenuptial agreement, they are likely to carry substantial weight provided the following measures are put in place when entering into the agreement:
- Both parties have taken independent legal advice before signing the agreement
- Full financial disclosure has taken place
- The agreement is signed at least 28 days before the date of the wedding
- The agreement is fair and reasonable and meets both parties’ reasonable needs as well as those of the children
A prenuptial agreement can regulate how to best protect the business moving forward. The agreement can also provide for shareholdings, business income and capital acquired through dividends, to be ring fenced.
Postnuptial agreements are signed after the wedding takes place. This can be due to the couple being unable to sign the document 28 days before the wedding or a change in individual circumstances, such as a sale of the business, a buy-out or business restructure.
Shareholders’ agreement
The agreement can prescribe a method for valuing the shares in the event of a shareholder’s divorce. It can ensure that on divorce, shares cannot be transferred to the shareholder’s spouse without the board’s consent or if transferred, they must be offered back to the owner. The agreement could also provide for limited rights to disclose information relating to the company to a shareholder’s spouse.
The court has wide ranging powers to deal with business assets on an individual’s divorce. However, there are measures that can be taken to mitigate this risk as far as possible. A word of caution – disposing of shares or other assets shortly before or during the divorce process will be viewed negatively by the family court, which has the power to set aside any transactions.
Marwa Hadi-Barnes can be contacted on:
T: 01293 605000
E: marwa.Hadi@dmhstallard.com
