Divorce and the family business

When setting up a business the state of your marriage (or civil partnership) is likely to be one of the furthest things from your mind. However, nearly half of all marriages in the United Kingdom end in divorce and whilst your marriage is likely to be a happy one, you should not ignore the possibility that it could one day come to an end.

Philip Rutter, partner in the family department at Collyer Bristow solicitors comments "divorces involving family businesses can be the most difficult to resolve. Dividing what may always have been an illiquid asset can be tricky, particularly where the business has to provide the family with an income going forward."

Do not give shares or an interest in the business to your spouse unless they are going to have a day to day role in the business. There may be reasons at the outset for giving shares to your spouse, but are those reasons still going to be there once your business is up and running? Gifting shares or an interest because your spouse has provided free help at the outset does not make sense if they are not going to provide further help once the business is established. Do not make your spouse a director, company secretary or employee unless they are actually going to fulfil the role.

If your business is successful and your marriage unfortunately fails, if your spouse is a shareholder, director, company secretary or employee it can affect the practical day to day running of the business as your divorce will take months, and in some cases years to settle. Unravelling the situation is unlikely to be straightforward and can result in extensive and expensive litigation, particularly if the breakdown is acrimonious.

For couples who are not married the situation is more critical as the court does not have the same power to redistribute assets as a family court does on divorce. For unmarried people the court is unlikely to go behind any documents so if you have given shares to your partner the only way you are likely to get them back is by paying a fair market value. Removing them as an employee could result in a claim for unfair dismissal.

There are very many family businesses, but the successful ones are always first and foremost a business and any family interests reflect a contribution to the business.

For further information contact Philip Rutter:
philip.rutter@collyerbristow.com

020 7468 7287


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