How can divorce affect a family business?

The end goal for a divorce is to find a way to disentangle two lives that have grown increasingly more intertwined with each year of marriage, including a multitude of issues around child care, finance, and in some instances, a family-run business that will be affected by the separation.

A divorce can obviously impact a business that both spouses, co-created, grew together, or even where one spouse played a minor role. Separating business owners should be made aware that the company will equally be affected regardless of whether their spouse had or had no involvement in the business activities. Lenore Rice from UK law firm Wilson Nesbitt Solicitors explains the impact of divorce on the family business:

A business is an asset. It also forms part of all the assets that make up a couple’s joint wealth, along with their home, any other property, cars, and other valuable items.

As opposed to being settled privately by way of a matrimonial agreement, the clients’ separation of finances will be dealt with by the courts. In which the goal will be to reach a fair division of assets including the couple’s joint wealth. Then, make a decision on how the sum total of their wealth should be fairly divided.

While the starting point for the court will be a 50/50 division of assets, it will look at a large number of factors, including but not limited to:

  • the earning potential of each spouse;
  • who will be the resident parent of their children (if applicable);
  • the standard of living enjoyed during the marriage; and
  • other factors that it would be fair and reasonable to take into account.

There is a possibility to divide the assets in a way that reaches the division in which the court believes to be fair and reasonable. It is often the case that a property or a business represents a majority of the wealth and the court may determine that a sale will be required in order to facilitate a fair division of the assets.

The family court will be slow to break up a family business. There may also be other options available, such as:

  • one spouse buying out the share the other is deemed to be entitled to; or
  • liquidation of some assets of the business in order to achieve the settlement the court has arrived at.

Asset sales are a last resort because it holds such a huge impact on the capacity of the business to perform. If the court decides that the family business does have to be involved in the divorce, they will then have to deal with issues around:

  • the valuation of the company and its assets;
  • shares or interests of other family members,
  • financial contributions made to create and grow the business; and
  • other matters which will affect the share entitlement of both spouses.

Do you need a solicitor for setting up a business?

As long as you’ve covered all bases, setting up a business can be rewarding

How crucial is having a business solicitor?

Normally, having a solicitor just gives you the peace of mind that you need while running a business. One can help you with complexities, save you time, effort, misery in the future, and even money.

Register a business without a solicitor

A solicitor isn’t exactly necessary for you to start a business as there is no legal requirement that ties you to seek advice or support from a solicitor when you set up your business.

What a solicitor cannot do for you and where else to look

In getting a solicitor, there are things that you do not need legal expertise for, such as:

  • having an idea;
  • writing a business plan;
  • market research; and
  • Choosing a business name.

Your company structure

Your business structure is vital to your success as you begin and expand.

If you are in partnership with other people in your business, you will be needing a shareholders’ agreement or partnership arrangement to ensure that you get fair return for your financial or non-financial investment.

Your solicitor will be able to explain the different options you have and advise you which one is the best for you and for your business and which you should set up—partnership, limited company, or limited liability partnership.

Business premises

It is important that you fully understand the terms of the lease when you finally choose your business premises. Ask yourself (and your solicitor) the following property questions:

  • Can the landlord increase your rent? If so, by how much?
  • Will you find yourself paying ever-increasing service charges?
  • Will you need planning permission for a change of use?
  • What are the restrictions if you choose to run your business from home?

Financing and taxes

You need to know what financial resources are available for you and what their legal implications are. Ask yourself :

  • Should you mortgage the family home?
  • Are lenders insisting on unfair terms?
  • Could you be getting a better deal with your bank?

Your solicitor will be able to explain these areas and may even help in negotiating with finance on your behalf. Your solicitor may also give you advice on issues such as the best time to start your financial year and tax implications of different business models.

Goods and services

It is important to know your legal duties when buying or selling goods and services. A solicitor can cover all the following questions in detail and refer you to a specialist, if necessary:

  • What could contract terms mean for your business?
  • What about product liability?
  • What can you legally say in adverts and promotional materials?

Get help with commercial contracts at sanderswitherspoon.co.uk.