Local legal experts discuss dilemmas that arise in matters relating to divorce and family businesses

PUBLISHED: 18:28 11 September 2012 | UPDATED: 21:51 20 February 2013

Beverley Darwent. Picture by Mark Waugh

Beverley Darwent. Picture by Mark Waugh

Local legal experts discuss dilemmas that arise in matters relating to divorce and family businesses

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Pannones Family team has considerable expertise and experience in divorces and relationship breakdowns involving family businesses whether limited companies, PLCs, partnerships or sole traders.

Whether you are facing a claim against your business or claiming a share of your spouses business certain questions commonly arise.

Will the business be treated as an asset of the marriage? If so, how will it be valued?

It depends on the individual circumstances of each marriage, but in most cases the value will be taken into account. Depending on the nature of the business and the owners role, it can be argued that the business is an income producing asset and doesnt have a value.

After a long marriage where a non-owning spouse has been involved in the business, the value of it could be very significant and a detailed valuation likely.

In comparison, if one spouse has owned a business for a long time but the marriage is relatively short, very little, if any, of the value in the business can be claimed by the non-owning spouse.

It is often important at the outset of the case to decide whether to seek or resist a formal valuation of the business

Could a court force the sale of the business or give my spouse an interest in it?

It is extremely rare that a court will order a sale of a business. A business will be preserved where possible to provide a livelihood for its owners and employees.

A divorce settlement has to be fair to both spouses so if the business is to be preserved, the other spouse will need to be provided with sufficient capital or other assets or maintenance. If there is sufficient liquidity in the business, cash can be withdrawn to fund a one-off settlement or series of payments provided other shareholders in the business are not adversely affected and the business is not damaged.

If there is insufficient liquidity to fund a cash settlement, a court does have power to transfer some or all of the business owners shares to their spouse. Careful consideration is needed to ensure cash is taken out of the business in the most tax effective way.

Damage limitation

There are various steps a business owner can take to limit the effect on their business of marital breakdown. These could include some or all of the following:

Entering into a prenuptial agreement before marriage in which the non-owning spouse agrees not to claim against the business. A prenup must always be drafted by a specialist practitioner to satisfy certain requirements to maximise its effect.

Shareholder Agreements properly drafted for the business owning spouse and other shareholders to preclude the spouse of any shareholder acquiring an interest in the business on a shareholders death.

Tax-efficient trust and will planning to maximise tax relief and preserve the business for the owners children.

This is a very complex area of law and whether you are the business owner seeking to protect your business or a spouse claiming against it, it is important you seek specialist advice to secure the best outcome for your particular situation.

If you would like further information on any of these issues please contact Beverley Darwent, a partner in our Family Team on 0161 909 1579 or beverley.darwent@pannone.co.uk.

Pannone LLP
123 Deansgate
M3 2BU

Solicitors comments...

It is often sensible to obtain a professional valuation of a business and a spouses interest in it. Such a valuation can assist in ascertaining how much can be withdrawn from or borrowed against the business to satisfy the other spouses reasonable claims.

For further information contact Diana Williams, Partner and trained Collaborativer Solicitor and Mediator at Cullimore Dutton on 01244 356789 or email diana.williams@cullimoredutton.co.uk

Historically courts would seek to protect a family business from being sold, however following recent case law a family business is more likely to be carved up alongside the parties other assets. It is essential where there is a business to get a family lawyer whom is experienced in this area; it is likely that an expert will be appointed to value the business possibly on a dividend or asset basis. The liquidity of the company also has to be considered.

For further advice contact Lorraine Harvey, Principal Lawyer (Partner) at Russell Jones & Walker, part of Slater & Gordon Lawyers on 0161 383 3650 or lharvey@rjwslatergordon.co.uk. We offer a free consultation at our office in Manchester or in Bramhall.

Evaluating business interests is a complex area within family financial proceedings. It is always advisable to seek appropriate advice from a specialist family practitioner so that a defined, realistic and proportionate approach to the consideration of business interests can be adopted from the outset.

Jane Devine
Storrar Cowdry
India House
21 Castle Street
Tel: 01244 400567

The issues can become more entrenched if the business represents a joint venture between the parties, or if, the non owner is an employee of the business. Agreements reached need careful drafting to protect the parties/business against further family law related claims but also against interrelated employment/commercial disputes.
Weightmans top tier family team work closely with the firms strong corporate, employment and private client offerings to ensure an optimum outcome for clients.

Carole Atkinson, Head of Family & Private Client, Weightmans LLP
T: 0845 073 9900 E: carole.atkinson@weightmans.com W: www.weightmans.com

Where a husband and/or wife owns a business and they divorce, it is vital the true value of the business and its nature is ascertained, to keep expectations and costs in perspective. Some businesses are based purely on the ability and personality of one person and consequently the business has no real value except whilst being run by that person. However if the business is independent of who runs it, its true value as an asset is important. Both parties must be realistic and consider whether its better to keep or sell the business, rather than seeking the lump sum generated by a sale. It is vital where a business is involved for both parties to seek legal advice.

Rachel Wynn Jones
Partner and Head of Family and Divorce
0844 346 3149

The valuation of a business is often crucial in a divorce. It is vital that you instruct a lawyer who has experience of cases involving such assets.
Most couples want to buy out the non owning spouses entitlement, preserving the owning partys ability to operate the business as they see fit. However, due to the economic austerity which has a negative effect on both the asset and income position of a business, the non owning spouse may find themselves with a raw deal, which is why the transfer of shares may be a better long-term strategy. However by taking such an option, the non owning spouse will no doubt sacrifice capital upfront for a share in a company which may never realise its potential for several years, if ever.

Emma Gill
Associate Partner, Laytons Solicitors LLP, 22 St John Street, Manchester, M3 4EB Tel:0161 214 1600
Website at www.laytons.com

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