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.