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For better or worse - How to help ‘divorce-proof’ your business

By rotide
Created 31/12/2018 - 11:11
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As a business owner, it is almost certain that you will encounter tough times, whether due to a dip in revenue, a loss of key staff or an economic recession. But one of the greatest - and most unsuspecting - challenges to a business owner is divorce.

Once you've fallen in love with your partner and built a life and family together, divorce is not one of those things you anticipate, plan or want to be privy to.
No-one can predict how a relationship will turn out and risk should never stand in the way of happiness and the fulfilment a marriage can bring.

However, with 42% of marriages ending in divorce, it can happen to the best of us, particularly if you've taken your ‘eyes off the marital ball' and been putting in long hours at work. If handled poorly, divorce could result in you having to sell your business as it may be a valuable marital asset to meet both parties' needs.

A common misconception is that a business is a separate legal entity, hence it will not be touched when couples divorce. This is not always the case. Value of shareholdings in businesses can be considered and form part of the ‘matrimonial assets' to be divided and distributed upon divorce, especially if the business was created during the marriage.

Getting specialist advice on the necessary legal, fair and reasonable documentation and legal steps to take at the outset of marriage is therefore important. Simple, diligent forward-thinking can help ensure that your business remains as intact as possible upon divorce.

So, what can you do to better safeguard your business?
1) Consider a prenuptial or postnuptial agreement

Entered into before or during a marriage, these contracts address how marital assets, including ringfencing business shareholding and assets, are dealt with and divided on divorce. Such agreements are not enshrined in legislation in the UK and there is no absolute guarantee of protection. However, a well drafted prenuptial or postnuptial agreement following the necessary guidelines is highly advisable as they provide some clarity, certainty and also peace of mind whilst keeping costs and legal disagreements to a minimum upon divorce.

2) Create a shareholder's or partnership agreement if you share ownership of the business with your spouse

This is a contract clearly setting out what will happen to a business if disputes or divorce occurs and protects the interests of both parties. You can also agree restrictive clauses preventing a departing spouse from setting up in direct competition, sharing confidential information or stealing clients.
3) Invest in a good insurance policy

Invest in a whole-life insurance policy that can be liquidated to buy a spouse out of the business if the marriage hits the rocks, giving you some peace of mind and certainty of funds.

4) Keep your business and household expenses entirely separate

Scrupulously maintain good records by carefully documenting and avoiding intermingling personal assets with business assets. Avoid the use of the family home to secure borrowing within the business.

5) Consider sharing ownership of your business with outside sources

A 100% spouse-owned business will generally be treated like any other matrimonial asset on divorce, namely divided or shared, unless there are good reasons not to. However, where a business is jointly owned with other shareholders or partners, the court is less likely to take steps which might potentially damage the livelihoods of the other such stakeholders.

If you haven't had the foresight to do these things that's completely understandable. The key of a happy relationship is to build a lifetime of togetherness and you may not have considered the possibility of a breakup.

As such, there are a few things that you can do at the last minute to come to the best settlement possible if you are faced with a divorce.  One useful strategy is to agree to trade some of your other personal ‘liquid' marital assets that you are prepared to let go of with the ‘illiquid' business ownership you want to keep.

Despite the possibility of divorce, there is no doubt how invaluable a marriage - choosing to start a family and creating a life with your partner - can be for your personal happiness and professional development, too.

Entrepreneurs need grit, creativity and a huge amount of drive and commitment, something than can often be aided by a loving partner. Life is unpredictable, but you shouldn't use the risk of divorce as an excuse not to make the commitment to someone you love. The focus should be on creating a happy fulfilling marriage in the first place and enjoying the joint hard work of building a lifetime of togetherness and completely bypass the damaging route of divorce.

For more information visit www.sheelamackintoshstewart.com [1]

 


Source URL:
https://www.newbusiness.co.uk/articles/hrpayroll-advice/for-better-or-worse-how-help-%E2%80%98divorceproof%E2%80%99-your-business