Business & Divorce
Keeping it in the family – How to deal with businesses when splitting up
Separation or divorce can be traumatic at the best of times. However, when you add a business into the mix and the professional also becomes personal, this can add an extra level of complexity, cost and heartache.
More and more people are moving out of the directly employed arena and have started their own businesses. However, this gives you an extra asset to deal with when it comes to sharing things out in a divorce or separation. Both the business as an asset and also as the basis for the income of one (or both) spouses have to be considered. In addition, many couples run the business together and may not be able to work together (at least temporarily) during the process. The practical elements of who does what on a day to day basis will also have to be thought through.
Ownership is often shared between spouses, particularly in companies. Where one partner does not have another income stream, such as a separate job, accountants and tax advisers have often (correctly) advised the couple to each hold shares to allow income from the business to be distributed to the household in the most tax efficient way. However, this can cause problems when the couple split up. The partner working within the business often feels extremely aggrieved at the thought of having to send half of “their” money to their spouse, particularly where the spouse does not work in the business.
The courts have a wide range of powers to transfer assets between the parties, so this can make for a very flexible arrangement, where the business can be used to generate income for the partner now working in the business, rather than using a maintenance arrangement (or to supplement it). Additional protections should be built into the corporate documents in order to prevent any future animosity.
Alternatively, the business as an asset can be used to achieve a just arrangement between the parties in terms of dividing the assets of the family. We often see settlements where one party retains the business in exchange for some or all of their interest in the family home. Where the parties’ priorities during the relationship have been slightly different, such as one party focussing on the business, while the other provides a home for any children, this can often feel like a satisfactory outcome for both of them.
It tends to be more complicated where both parties work in the business, even if they have very different roles. It is not unusual for one party to be the main “breadwinner” of the business, with the other providing vital administrative back up, such as doing the accounts and running the office. This can cause problems when the parties are no longer a couple, often because they cannot avoid bringing their personal problems into work. Ultimately, this will be an emotional decision for one or both of the parties as to whether they can continue to work together while splitting up. If one party is going to leave the business, consideration will have to be given as to the cost of replacing that person, both in terms of money and time. Be wary of underestimating the contribution that is made by the other party in a business – it is often not until they have left that their absence is properly felt. It is worth considering whether working with the devil you know is better than working with one you do not!
If you are considering divorce or separation and there is a business element to consider, Coles Solicitors can offer a seamless service designed for your needs, with our Commercial and Family specialists combining to cover all your requirements. We also offer an initial no-obligation meeting, so you can meet us and make sure we are the right team for you.