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How to help make sure your business survives a marriage breakdown

October 19, 2018

Ensure your business survives a divorce

Being a business owner ultimately means you will face tough times, whether that be the loss of a key staff member, a dip in revenue or an untimely economic recession. However, one of the greatest – and most unsuspecting – challenges to a business owner, is a divorce.

To help ensure you don’t lose your business if you get divorced, we asked Matrimonial Consultant and Family Lawyer Sheela Mackintosh-Stewart to share her advice on how to ensure business survival in the event of a marriage breakdown.

When falling in love with your partner and building a life together, divorce is not something that you wish to be privy to, plan or anticipate. No-one is able to foresee the outcome of a relationship and risk should never hinder marriage and the happiness and inner contentment it can bring.

Sadly though, with 42% of marriages ending in divorce, it can happen to any of us, especially if you have focused your attention away from the ‘marital ball’ and put long hours into your business.

Getting specialist advice on the legal steps and essential legal, fair and practical documentation to take at the outset of marriage is therefore imperative as a poorly handled divorce can result in you having to sell your business.

Protecting a business from a divorce

A common misconception is that a business counts as a detached legal entity, hence it will not be touched when divorce occurs. This is not always the case.

Value shareholdings can be considered and used to form part of the ‘matrimonial assets’ to be divided and distributed upon divorce, particularly if the business was formed during the marriage.

So, what can be done to help divorce proof your business?

Create a shareholder’s or partnership agreement

Drafting a shareholder agreement if your business is a limited company, or a partnership agreement if you are operating as a partnership, gives you a contract clearly sets out what will happen to the business if disputes or divorce occurs, helping to protect the interest of both parties.

It is also possible to agree to restrictive clauses which prevent a departing spouse from stealing clients, sharing confidential information and setting up in direct competition.

Consider agreeing to a prenuptial or postnuptial agreement

These are contracts that are entered into either before or during a marriage and address how marital assets, including business shareholding and ringfencing assets, are dealt with and divided on divorce.

These agreements are not enshrined in UK legislation and therefore there is no total guarantee of protection, but a well drafted agreement following the required guidelines is extremely advisable.

The contracts can provide some clarity and peace of mind, whilst ensuring the costs and legal disagreements are kept to a bare minimum upon divorce.

Ensure you have a good insurance policy

Invest in a whole-life insurance policy which can be liquidated to buy out a spouse from the business if the marriage seems to of hit rock bottom, giving you some well needed funds.

Consider sharing ownership with external sources

If your business is 100% spouse owned then it will generally be treated the same as any other matrimonial asset on divorce, namely shared and divided, unless a strong reason not to do so can be provided.

Whilst on the other hand, if the business is jointly owned with other partners or shareholders, a court will be less likely to take steps that might damage the other stakeholders and their livelihoods.

Be sure to keep your household and business expenses totally separate

Methodically maintain good and accurate records by prudently documenting and avoid intermingling business assets with personal assets. In addition, avoid the use of the family home to secure borrowing within the business.

Saving your business in a settlement

If you’ve not had the foresight to undertake such measures, then that is completely understandable. The key to a happy and fulfilling marriage is to form a lifetime of togetherness and you may have felt that preparing for a breakup would be counterproductive.

If this is the case, there’s a few things which can be implemented last minute to ensure you come to the best settlement possible when you are on the verge of divorce.

One suitable strategy is to agree to exchange some of your other personal ‘liquid’ material assets with the ‘illiquid’ business ownership you wish to keep.

Despite the harshness of divorce, there is no question surrounding how invaluable marriage is – choosing to start a family & creating life with your partner – can be beyond beneficial to your own personal happiness and also your professional development.

Entrepreneurs need imagination, grit and a resounding level of commitment and drive, something that can often be aided by a caring and loving partner. Life is unpredictable, but you should never use the risk of divorce as a reasoning for not making a commitment to someone you love.

Creating a happy and fulfilling marriage, where you can both build a rewarding life together, should be at the forefront of both your focuses. In doing so, you are much more likely to bypass the damaging route of divorce altogether.

About the author

This guide has been written exclusively for ByteStart by Sheela Mackintosh-Stewart, Matrimonial Consultant and Relationship Guru, on a mission to make society ‘relationship-smarter’ by helping people to have more fulfilling and contented relationships, preventing the devastating consequences of marriage breakdowns. Twitter: @sheelamac

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