On dispute, businesses form an integral part of financial settlements. It has always been assumed a family business would be protected during a divorce, however, recent case law has shown that this may not always be the case. Businesses now form an integral part of financial settlements and are considered to be an asset along the matrimonial home, investments and pensions.
The way business is funded in divorce changed due to the landmark case of White vs White in 2000. Mrs White was awarded a 40% share of the couple's farming business, making it necessary to sell the business in order to fund her settlement. Settlements are now focussed on substantive contributions to the business and homemaking during the marriage with both being considered as of equal importance. The courts are required to test their proposed division of assets against a yardstick of equity, which for most cases is a 50/50 split.
In awarding a settlement, the courts will then consider the family business together with any other family assets and depending on the individual circumstances that could mean the business having to be sold.
As an asset, your business is going to be under scrutiny and you will be required to make a full and frank financial disclosure. In addition to this, it's always helpful to sit down with a solicitor and flesh out this information. All businesses are unique and a full knowledge of the nature of your business and how it works will assist a solicitor with your case.
Some points you may wish to consider:
o What are your plans for the business – do you want to run it as a sole trader?
o Were you hoping to leave it to your children?
o Who set up the business?
o A realistic idea of how much contribution your spouse has made historically and at present.
o Who else is involved in the business?
o What is the position with regard to the sale of shares?
o How is the business weighted financially?
o Is it capital heavy and income light or capital light and asset heavy?
o What are the strengths and weaknesses of your business in today's market?
o How do you see the business performing in the future?
o What are your plans for the business?
What can you do to protect your business?
There are measures you can take in order to reduce the impact on your business. It does, of course, depend on whether the business was started before or during your marriage, who started the business, whether your spouse was active in the business and if she wants to remain so. These issues are best discussed with your solicitor in order that they can best build your case. Following this, these are some of the avenues you may be able to pursue.
- Does the business have separate assets? Are there any other assets that can be transferred to your spouse without damaging the business? This can take the form of liquid assets such as bank balances, land or property in the case of farming or property development companies.
- Do you have any non-business assets you can transfer? It may be possible for the partner retaining the business to transfer non-business assets such as a larger share of the joint home, private savings or investments to the spouse which can be offset against the spouses interest in the business.
- Paying installments over a period of time The partner retaining the business could opt to pay a lump sum to the spouse over a set period of time. This may suit you if you can increase your income from the business over a limited period or generate sufficient borrowings.
- Paying your spouse a proportion of the net proceeds in the future You may be able to agree to pay your spouse a percentage of the net sale proceeds in the future. This does of course tie you together beyond your divorce which is not always desirable.
- Can you continue to run the business together in some form? If the business is generating a healthy income stream and you have children that need support, you may consider ways of both continuing the company. This approach is only suitable for some people and would benefit from the collaborative law approach.
- Maintenance Instead of a clean break, the other partner could opt to have ongoing maintenance payments, and if the business is sold in the future, opt to capitalize the maintenance at that point. Again, has the disadvantage of leaving one partner reliant on the other which is not desirable in all cases