4.8 million UK businesses are family-owned but 42% of marriages end in divorce – what happens to a business when there’s a divorce?
Tensions and difficulties are commonplace in many relationships, but what happens when a family business is involved? Typical household tensions may be exacerbated, or even created, when working together in a business. Many business owners may find themselves with worry about how a failing relationship could affect their business.
It is common for people not to fully understand how financially linked a couple become when they choose to marry. In the eyes of the law, individual assets may become matrimonial assets, which may be distributed differently to how one party believes. While one person may have built the business, the law recognises the other partners’ contributions – whether through direct involvement in the business, providing emotional support, raising children, or managing the household. These roles are considered significant in the growth and development of the business. Often, one partner may pause their own career to support the family, leaving them at a financial disadvantage. All financials require careful examination alongside a divorce.
Marital breakdowns become even more complex when a family business is inherited or when a business has been significantly developed by one spouse before the marriage. It is a common misconception that family businesses are exempt from being divided in a divorce. In reality, they can form part of any financial settlement, regardless of how long the business has been operating.
Dividing assets can be particularly challenging when a business is involved, as it typically consists of two components: cash holdings and physical assets. While cash is relatively straightforward to divide, assets such as property or machinery are more complicated as they may be difficult to sell or are needed for business continuity. A financial agreement must be carefully structured to ensure one party does not receive easily accessible cash while the other is left with hard to sell assets, such as property or equipment.
Seeking expert legal advice is essential in these situations.
At Emsleys, our advice is to have open, upfront conversations about both parties’ financial futures at the outset of the relationship. Drawing up a pre-nuptial agreement may protect family heirloom businesses. When creating a new business, especially one which involves employing their partner, careful consideration of future division is essential as the company grows.
Divorce in the modern day may seem relatively straightforward, but the associated financial negotiations rarely are. For high-net-worth individuals the division of assets can be particularly complicated. When making settlements, The Courts always seek fairness, ensuring that both parties’ needs are met. Seeking expert legal advice protects not only you but also your family and children.
Speak to Emsleys today for advice on divorce, separation, and financial agreements. We’re here to protect your best interests.
