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For better or worse – How to help ‘divorce-proof’ your business

For better or worse – How to help ‘divorce-proof’ your business

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Matrimonial consultant and family lawyer Sheela Mackintosh-Stewart shares her advice on how to ensure business survival in the event of a marriage breakdown

a business owner, it is almost certain that you will encounter tough times,
whether due to a dip in revenue, a loss of key staff or an economic recession.
But one of the greatest – and most unsuspecting – challenges to a business
owner is divorce.

you’ve fallen in love with your partner and built a life and family together,
divorce is not one of those things you anticipate, plan or want to be privy to.

No-one can predict how a relationship will turn out and risk should never stand
in the way of happiness and the fulfilment a marriage can bring.

with 42% of marriages ending in divorce, it can happen to the best of us,
particularly if you’ve taken your ‘eyes off the marital ball’ and been putting
in long hours at work. If handled poorly, divorce could result in you having to
sell your business as it may be a valuable marital asset to meet both parties’

common misconception is that a business is a separate legal entity, hence it
will not be touched when couples divorce. This is not always the case. Value of
shareholdings in businesses can be considered and form part of the ‘matrimonial
assets’ to be divided and distributed upon divorce, especially if the business
was created during the marriage.

specialist advice on the necessary legal, fair and reasonable documentation and
legal steps to take at the outset of marriage is therefore important. Simple,
diligent forward-thinking can help ensure that your business remains as intact
as possible upon divorce.

what can you do to better safeguard your business?
1) Consider a prenuptial or postnuptial agreement

into before or during a marriage, these contracts address how marital assets,
including ringfencing business shareholding and assets, are dealt with and
divided on divorce. Such agreements are not enshrined in legislation in the UK
and there is no absolute guarantee of protection. However, a well drafted prenuptial
or postnuptial agreement following the necessary guidelines is highly advisable
as they provide some clarity, certainty and also peace of mind whilst keeping
costs and legal disagreements to a minimum upon divorce.

2) Create a
shareholder’s or partnership agreement if you share ownership of the business
with your spouse

is a contract clearly setting out what will happen to a business if disputes or
divorce occurs and protects the interests of both parties. You can also agree
restrictive clauses preventing a departing spouse from setting up in direct
competition, sharing confidential information or stealing clients.
3) Invest in a good insurance policy

in a whole-life insurance policy that can be liquidated to buy a spouse out of
the business if the marriage hits the rocks, giving you some peace of mind and
certainty of funds.

4) Keep your business
and household expenses entirely separate

maintain good records by carefully documenting and avoiding intermingling
personal assets with business assets. Avoid the use of the family home to
secure borrowing within the business.

5) Consider sharing
ownership of your business with outside sources

100% spouse-owned business will generally be treated like any other matrimonial
asset on divorce, namely divided or shared, unless there are good reasons not
to. However, where a business is jointly owned with other shareholders or
partners, the court is less likely to take steps which might potentially damage
the livelihoods of the other such stakeholders.

you haven’t had the foresight to do these things that’s completely
understandable. The key of a happy relationship is to build a lifetime of
togetherness and you may not have considered the possibility of a breakup.

such, there are a few things that you can do at the last minute to come to the
best settlement possible if you are faced with a divorce.  One useful strategy is to agree to trade some
of your other personal ‘liquid’ marital assets that you are prepared to let go of
with the ‘illiquid’ business ownership you want to keep.

the possibility of divorce, there is no doubt how invaluable a marriage –
choosing to start a family and creating a life with your partner – can be for
your personal happiness and professional development, too.

need grit, creativity and a huge amount of drive and commitment, something than
can often be aided by a loving partner. Life is unpredictable, but you
shouldn’t use the risk of divorce as an excuse not to make the commitment to
someone you love. The focus should be on creating a happy fulfilling marriage
in the first place and enjoying the joint hard work of building a lifetime of
togetherness and completely bypass the damaging route of divorce.

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Phone: 020 8347 6640
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1345 High Rd
London, London N20 9HR

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