Can you protect the family business from the impact of divorce?

When you set up or have an interest in a family business, the last thing you probably think about is how to protect the family business from the impact of divorce. Your focus is on myriad other things such as growing the business and making it productive and profitable. You have many stresses ranging from finance to people, customers to suppliers. Indeed, it is the very family business that can cause stress to a marriage and, potentially, lead to its breakdown. This can also happen in a civil partnership.

Is the family business matrimonial property?

Perhaps the starting point is to consider whether the interest in the family business is considered matrimonial property. For a spouse or civil partner, the starting point is to establish if the interest in the family business is, in fact, matrimonial property at the time of separation.

There is a general rule that if the interest in the family business was established before the date of the marriage or civil partnership, it is not matrimonial property.

However, that does not mean you are home and free. You will still need to consider the potential increase in the value of your interest in the family business during the marriage or civil partnership and the contribution of your spouse or partner.

You also need to take care if you are re-structuring the family business as this may cause it to become a matrimonial asset on which a claim by a spouse or civil partner can be made.

What types of family business could be exposed?

Family businesses come in all shapes and sizes. These range from sole traders to partnerships to limited liability partnerships to limited companies. There is no hard or fast rule about the structure of the business.

Indeed, if the family business is restructured after your marriage or civil partnership, that event on its own may bring your interest in the business into the realm of matrimonial property. That means, before you consider restructuring the business, you should consult not only a corporate lawyer but also one experienced in family law!

If your interest in a family business is considered to be a matrimonial asset and your spouse or civil partner wishes to include this in their claim for a capital sum, this could have an adverse impact on the family business itself.

How does divorce cause disruption in a family business?

Although divorce has deeply personal implications, it can also cause considerable disruption in a family business. It might mean others having to take over your role whilst you are seeking to reach agreement with your spouse or civil partner. This can lead to tension among the family business owners.

If your spouse or civil partner is in the family business with you, your divorce is likely to mean that you can no longer work together. This means decisions need to be made for the smooth operation of the business whilst the financial aspects of the divorce are being sorted out as well as for the post-divorce operation of the business.

How can I protect my interest in the family business?

The most straightforward way to protect your interest in the family business is to enter into a pre-nuptial agreement with your spouse or civil partner before your marriage or civil partnership. This would have the effect of excluding your interest in the family business from being or becoming matrimonial property, thus protecting it from any claim on divorce.

If, however, you create the business or acquire an interest in the family business after you become married or enter a civil partnership, you should consider a post-nuptial agreement. Again, this agreement will seek to protect your interest in the family business becoming matrimonial property.

If you and your spouse or civil partner are in business together in the family business, you can create a shareholders’ agreement to regulate the affairs and ownership of the business on divorce.

What is the courts’ view of the interest in a family business on divorce?

The Scottish Courts are reluctant to make decisions that would harm viable family businesses or lead to the closure of the business. Doing so would likely impact the employees of the business and potentially harm customers and creditors alike.

It is more likely that the courts will take a pragmatic approach and make a capital award based on the value of your interest in the family business, including it in the calculation of the overall matrimonial property before deciding on its division. This is likely to lead to an uneven division of the matrimonial property but leave you with your interest in the family business intact.

What should you do if you are going to be divorced?

If you are going through a divorce or being divorced by your spouse or civil partner, it is essential you seek legal advice. You should not only focus on your matrimonial affairs but also consider the potential impact your divorce will have on your business.

At Paris Steele, we have solicitors experienced in dealing with businesses and family law. We provide you with the most up-to-date information and advice to help you navigate through this undoubtedly difficult time. Whether you need assistance with your separation, divorce, family business, or require a pre- or post-nuptial or shareholders' agreement, we are here to support you.

Contact us today to discuss your specific situation and receive expert guidance tailored to your needs. We are committed to helping you protect your family business and achieve a successful resolution.