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Is your business protected?

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A divorce is tough to go through especially when you have children but even tougher if there is a business to consider.

When you are happily married, having a document outlining what happens if the business were to end is not attractive, however divorces do happen and it could be the end of the business if not protected correctly. 

Do you own a company with your partner? 

PROCEDURE 

If you do not have any documentation outlining the split, the starting point for family proceedings with all cases is that joint assets are divided 50/50. Alternatively, the shareholding in the business when set up may determine the division. 

If a decision has to be made how the business is to be dealt with in the divorce proceedings and both parties cannot agree and own the company equally, this could end up with the company being wound up.

HIDING ASSETS

There are a number of ways one party might hide assets in divorce proceedings 

1. Delayed account preparation (an accountant should remain impartial on behalf of the company) 

2. Gifting away or liquidating assets of a company at a lower value

3. Selling the business to friends (intending to rebuy it later) 

Legal documentation should specify that more than one signature is required to sell and how to value the assets. If assets are sold at a undervalue, the family court does have the power to reverse the transaction.

PROTECTING YOUR BUSINESS

If running a business with your partner you should carry out the following checks:

  • Transfer all intellectual property (IP) rights to the company. If the IP rights/company is jointly owned, one party will need to buy out the other if they want to use it post-divorce
  • Draw up an agreement to set out what happens in the event of a dissolution or dispute
  • Agree restrictive clauses to prevent the departing spouse from stealing clients, setting up in direct competition or sharing confidential information. 
  • Specify who owns what shares and clearly document any loans to the company
  • Get a pre- or post-nuptial agreement. 
  • Make sure that your will mirrors these terms too, so that in the event of your death, it is clear how your shares or their cash value will be distributed

RESOLUTION

It is possible to find common ground during a divorce, providing both parties are open to finding an amicable resolution

  • Have well-drafted contractual documents in place, covering the terms of the working relationship and how it can come to an end 
  • Keep clear and distinct financial records, covering monies paid in and withdrawn. Clearly record any loans made to the company and document the terms for the repayment of that loan 
  • Instruct lawyers and good accountants, who are known to resolve issues, rather than litigate
  • Consider exploring mediation and/or arbitration to discuss matters 

Clear legal documents mean that if a divorce does happen, the business interests can be unravelled fairly and, as easily as possible.

This is not legal advice; it is intended to provide information of general interest about current legal issues. 

If you need any advice in relation to the above, please contact 01245 493939 and ask to speak with one of our family lawyers. We also offer free consultation at no charge for half an hour.