Alishia Marrocco is a senior associate in the family law department at regional law firm Howes Percival’s Northampton office.
In a relationship together and in business together... When the former crumbles, it is important to have protected the latter for both parties, says family law specialist Alishia Marrocco of Howes Percival Solicitors.
A divorce which involves a business needs to be handled correctly. With this in mind, it may be worth thinking of steps which can minimise the risk to the business before a divorce occurs. Clear legal documents can make it easier to unravel business interests as fairly as possible and prevent future problems arising. Here are some points to consider:
n Would a pre-nuptial or post-nuptial agreement be of benefit? While still not automatically binding in England, provided that certain formalities have been complied with, there is a strong chance that any agreement will be upheld. It will allow ring fencing of assets so that shares in the business are treated as separate property and not subject to sharing. This can be particularly important if you are bringing an existing successful business into the marriage.
n Consider whether your spouse should be a shareholder. If they are, would you be able to buy out their interest on separation? If you are 50:50 shareholders, would they co-operate on business decisions such as the renewal of a commercial lease or refinancing prior to resolution of the financial matters on divorce?
Business co-operation could become difficult if the personal relationship has soured.
n Should you enter into a shareholder’s agreement? Terms can be reached ahead of any separation on issues such as what will happen to the business on separation including who will leave and whether there will be restrictions on transferring shares.
You may want a written agreement about what rights the leaver would have to take clients, use confidential information or set up in competition. You could agree the method of valuation of shares.
n Think carefully before employing your spouse. It may become impossible for you to work together once there is a rift in your personal relationship but terminating employment could lead to employment claims.
It might also result in an argument that they were integral to the success of the business.
n Debts. Consider whether business debts should be secured against family assets. This can complicate matters and, again, raises arguments that your spouse has an interest in the business because money from matrimonial assets will have been used to support it.
Clearly document any loans to the business so that your extra investment is recognised.
If the worst does happen and your marriage comes to an end, instruct lawyers and accountants early to assist you. Also try and choose those who focus on resolution rather than dispute because that will make the process emotionally easier and more cost-effective.
You may want to think about alternative forms of dispute resolution such as Collaborative Law or mediation as an alternative to court.
The Family Court will try to avoid an outcome which causes the sale of a business but it has to ensure that each party has the resources to move on. It may therefore be the only solution if there is no other way of settling matters.
To discuss how to protect your business from divorce, or any other family matter, contact Alishia Marrocco on 01604 258032 or email
