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Impact of divorce on family businesses

A large percentage of businesses in this country can be described as family businesses.

These family businesses come in all shapes and sizes. They may be limited companies or partnerships. They may have been inherited by one party to a marriage or they may have been formed by a husband and wife during their marriage.

Whatever the circumstances, interest in the business assets will be in the “matrimonial pot” to be considered on divorce and this throws up a range of issues which need to be addressed.

In the majority of divorce cases, one party will remain in the business post divorce and the other will withdraw. The party who withdraws will be compensated, usually by receiving capital or maintenance.

Problems often arise in valuing a party’s share in the business and in achieving an outcome which will ensure that the business can survive. It would generally be desirable to preserve the business, although a sale can be ordered.

A different approach is likely to be adopted where the business is inherited as opposed to one which is jointly commenced during the relationship.

Where other family members are involved, the impact of a divorce can be even more significant and in such circumstances advanced planning may be extremely beneficial.

Whilst the value of a party’s shares in a limited company is relevant, the Divorce Courts cannot make an Order directed against the limited company itself. Shareholders Agreements can be used to block the risk of shares being ordered to be transferred by the Divorce Courts.

Pre-Nuptial Agreements can be used to describe the parties’ intentions regarding the business in the event of divorce by for example, clarifying that the business is to be preserved as an income generator for future generations – rather than as disposable capital.