How to protect your business from a divorce

It’s your business; you’ve worked hard to set it up or even taken it over from a family member, so how do you protect it in case of divorce? A family business is treated as an asset alongside the matrimonial home, savings, investments and pensions. This means a Family Court is able to make decisions which could potentially have a damaging impact on the business.

How do you protect your business?

With the correct planning in place you can protect your business. You can either enter into a prenuptial agreement prior to the marriage or a postnuptial agreement following the marriage excluding or limiting claims by your spouse against the business. These agreements should be viewed as an insurance policy and can be used as a way of protecting your assets, including your business. Over the last five years the higher Courts of England and Wales have increasingly taken into account the provisions of prenuptial and postnuptial agreements in financial proceedings associated with marital breakdown. Therefore entering into such an agreement is a wise move for many business owners.

You should try to avoid mixing business with private assets unless it is absolutely necessary. Keeping your business separate and apart from your other assets can help if there is a divorce. It can be a particular problem for instance if the marital home has been used to secure the business as this clearly gives your spouse an interest in the business.

Avoid employing your spouse in the business. Although there may be tax benefits in involving your husband or wife in your business, there is a drawback in that if you and your spouse separate then it can assist them in making a claim as by being involved in the business they could argue that they have also contributed towards its success.

Another factor which you should consider is whether it would be appropriate to share ownership of the business with other parties. This is because a Family Court is less likely to take steps which could have the effect of causing damage to the livelihood of your partners or other shareholders who have an interest in the business and therefore a Court in such circumstances may be less likely to make orders which could have a potentially negative impact on the business.

If you become aware your marriage is facing a breakdown, do not transfer assets out of the business, as such a move could prove to be detrimental. One of the rules in family cases is that you are required to make full financial disclosure prior to any divorce settlement. If your spouse and the Court become aware of such actions through your disclosure or otherwise, then this could be seen as a deliberate attempt to avoid your spouse’s financial claims. This could result in you receiving a less than sympathetic reaction from the Family Court and could be treated as financial misconduct. It could put you in a very bad light and damage your position in the eyes of the court.

For more information and to see how such an agreement may be beneficial to protect your business, please contact Wendy on 0113 320 5000 or by email on wpc@winstonsolicitors.co.uk.

Try out our prenuptial agreements calculator to see what you might save.