Protecting your family business from divorce

Setting up a business with your spouse is challenging, exciting and, hopefully, rewarding. But if your relationship doesn’t last, what happens to your business?

More than 50 per cent of marriages end in divorce today and if you’re running a business with your spouse when you decide to split then, along with the many other tough discussions that must be had, you have to make some big decisions about the future of your company.

We spoke to the Money Advice Service to find out what’s likely to happen when a couple who own a business together make the decision to divorce.

“In England, Wales and Northern Ireland, the business would generally be counted as a ‘matrimonial asset’,” Nick Hill, a money expert at the Money Advice Service, explains. “The value would therefore be divided between the couple in the event of a divorce or dissolution. Usually, a business is left with one owner — and the other partner is given a larger share of the other assets to compensate.”

However, he says, it’s slightly different in Scotland. “The business would only be considered to be a ‘matrimonial property’ if it was set up after the couple was married or made civil partners,” he says. “Although this sounds reasonably simple, the rules around this are actually quite complicated.”

He recommends that couples should seek legal advice before they take any action.

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So how can couples who own businesses together protect themselves and their businesses in the event that they do split up?

Michelle Crosby, CEO and co-founder of Wevorce told Entrepreneur magazine that it’s important to create divisions between legal, financial and emotional issues – recognising that you should not let personal issues to complicate business relationships or the other way round. “Create buckets so they don’t get the [legal, financial and emotional] issues mixed up,” she says. “We always start with separating what the issues, needs and desirable outcomes are.”

Read more: All you need to know about starting a business with your partner

Crosby also says that it’s important to define your roles and work out clear responsibilities at work. “Identify what task each person will manage,” she says, “so you don’t end up micromanaging each other.”

This will also help you to work out if you should continue to work together after a split or not.

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Many experts also recommend signing a prenuptial agreement before marriage, which would help to sort out issues like this. Richard Branson supports the idea of every marriage signing a prenup.

“While signing a prenup may seem unromantic, it is a very sensible thing to do – and if couples are not happy to make a prenup then something is amiss,” he says. “Prenups have the power to play a very important part in keeping divorcing families as civil as possible.”

Read more: Tips to avoid tension when living and working with your partner

He adds: “Although it’s a lovely ideal for two people to get married and be together for 70 years, in most cases it’s just not a reality. The real benefit of a prenup is honest communication – the chance to discuss and plan now, while you’re happy and understanding, instead of when you’re disgruntled and upset.”

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A prenuptial agreement can be especially useful for spouses running a business together because it reduces the opportunity for there to be major disagreements over the company. And while, as Richard says, seem unromantic, it's something that, anecdotally, seems to be rising in popularity, especially with entrepreneurs concerned with protecting their businesses in the event of a divorce.

“I do prenuptial agreements all the time for young entrepreneurs. In some cases, they’re starting businesses or start-up companies and are concerned that they will become successful,” prominent attorney Sanford K Ain told Family Lawyer Magazine. “At the time they get married, all they have is their interest in a business – which may be a shell of a company. However, they want to know that if it becomes successful, it will remain intact and they won’t risk damaging their personal ability to continue that business in the event of divorce. Prenuptial agreements are very common today, particularly among entrepreneurs.”

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