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Surprisingly we don't often get contacted by forward-looking businesspeople wishing to protect their business interests in the event of separation. Many do get advice from accountants leading to spouses becoming directors, shareholders or salaried employees as a tax efficient way of running the business, which of course can be beneficial.
But, little thought is given to the potential implications of this should the marriage break down. In this instance, a spouse receiving a salary through the business has employment rights. Payments cannot simply stop because the relationship has ended, without proper consideration.
We insure our lives, our cars, our wedding days and our businesses. But, few people consider the risks to their business as a result of a change in status of your relationship, or a relationship breakdown.
Many people think that assets and value within a business cannot be touched on divorce, as a company is a separate entity, right? Wrong.
The case of Prest v Petrodel Resources Limited  UKSC 34 saw Mr Justice Moylan "piercing the corporate veil" and ordering that properties owned by the Petrodel Group (Mr Prest's companies) be transferred to Mrs Prest.
At the very least the court is able to "lift the veil" and understand the structure and operation of the business and make its financial awards based upon that understanding, which may mean that the veil is cast aside completely. Read our review and comment from the time.
If you are facing developments in your relationship that may impact your business; or one of your fellow directors or shareholders finds themselves in this position, it is important to seek legal advice, from both your corporate / commercial lawyers and a family lawyer, so that you can make informed decisions.
At the time of a divorce, an agreement has to be reached about how your family assets are divided. This includes everything that you and your spouse own, which is all notionally put into the same pot and divided to enable a fair settlement. If you don't reach an agreement, the court can impose an order on you.
All assets, income and pension need to be considered. This includes business interests, which are not automatically excluded in the absence of any clear written agreement (even if seemingly all owned in a limited company name).
Therefore, a business can be taken into account by the family court as something capable of being divided between you and your spouse, if liquidity allows.
Factors that will affect this and have an inevitable knock-on impact on liquidity include the existence of other shareholders and inheritance planning - i.e. an intention to pass on the business to your children.
Some things that you may want to think about will include:
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.
03 January 2018
Insights 15 SEPTEMBER 2021