Where there is a family business in a divorce, this adds a layer of complexity.
For the business owner, he or she will be anxious to know how the business is to be taken into account in the financial settlement.
For the other party, he or she will want to know what their entitlement is and whether or not they can receive money from the business.
How can the value of business be reduced on divorce?
The first obvious point is that a minority shareholding might attract a discount in the value of the shares. However, some companies are run almost as a quasi-partnership, so arguably no discount might not apply. Each divorce case needs be considered individually.
Next, a business on a divorce might be seen as a riskier asset, compared to say a property. It is also illiquid. So, there are common arguments that there should be a further discount in the value of the business or shareholding to take business risk or liquidity issues into account. The tax consequences of a divorce should also not be overlooked because it is important to consider the net asset base of the case.
Will the business be sold as part of the divorce?
This is rare and unusual. Certainly, it will be seen as the last resort as it could be killing the goose that lays the golden egg.
The Family Court needs to consider all the facts and circumstances of a divorce. The judge will take into account relevant factors.
How can I protect my business from a divorce?
One good way to protect your business on divorce is to consider in advance a pre-nuptial or post-nuptial agreement. Your pre or post nuptial agreement could look at ways of attempting to ringfence the business or setting out how it is to be taken into account in any future divorce or separation.
If a nuptial type agreement is not possible, exercise caution and seek legal and accountancy advice if you are considering transferring shares to your partner. Where this happens, it can add a layer of difficulty in the divorce and/or a problem in actually getting the shares back.
What if my business partner is getting divorced?
First, the Family Court does not have power to make orders in respect of your shareholding or partnership interest. However, you will naturally be concerned about how the impact of a divorce may have on your business.
Your business partner should ensure that he or she has the best possible divorce advice from a solicitor; and who has experience in dealing with business on divorce cases.
A shareholders’ agreement might be an important consideration to review or put in place; or, where appropriate, a partnership agreement. This could reasonably seek look at what is to happen to the buiness shares or partnership interests in the event of a divorce.
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