Dealing with divorce in a family business

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: Finding the balance between your work family and your real family

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. 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 it may 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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