A look at family businesses and divorce

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AS a family lawyer, I see many married couples that combine their business and personal lives by setting up a business together, or by bringing their spouse into their existing business. Sharing the fruits can be mutually beneficial, but what happens to the business if the marriage ends?

Sometimes the couple can continue to run the business together, even after divorce.

More commonly however, the end of the marriage signals the end of the working relationship, in which case important decisions need to be made regarding the future of the business.

For example, who stays and who goes? If one party transfers their interest to the other, how will their share be valued?

How will this impact on the business moving forward? How can the funds be raised to buy the other out? Is there liquidity in the business? What are the tax consequences of the proposed transaction, and who will bear responsibility for that?

Where one spouse has been a silent partner, their refusal to transfer their shares in the family business can be used as a negotiating tool.

Furthermore, where one spouse has become financially dependent on tax efficient income, the loss of that income may give rise to claims against the main breadwinner for ongoing financial support.

If there is a dispute, the court can determine how assets and incomes are to be distributed. But the costs of divorce litigation can rise steeply, and the future of the business can be uncertain.

Given that around 40% of marriages end in divorce, I would recommend that all couples in business together discuss and agree what will happen in the event of divorce. It’s simply another type of risk planning, albeit a very personal one. But it will give peace of mind and reduce the potential for acrimony, uncertainty and risk in future.

A ‘nuptial agreement’ (entered into either prior to or during the marriage) clearly sets out how the couple intend to deal with their financial affairs in the event of marriage breakdown. Contrary to popular belief, these documents are not only for the rich and famous! Family courts will uphold the terms of nuptial agreements upon divorce, unless it would be unfair to do so; for example where the terms of the nuptial agreement would not meet the needs of one of the parties.

Nuptial agreements are becoming increasingly common between couples who wish to avoid acrimony and ensure a clear outcome in the event of marriage breakdown.

However, each party should take advice from specialist family lawyers and other professional advisers to ensure the best chance of it being upheld, should the need arise.

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Dominic Levent Solicitors
Email: Enquiries@dominiclevent.com
Phone: 020 8347 6640
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1345 High Rd
London, London N20 9HR

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