Divorce and the Family Business - Kuits Solicitors Manchester

Divorce and the Family Business

Divorce and the Family Business

21st June 2021 - Published by Kuits Family team

Divorce is stressful at the best of times; but when either or both of the couple are shareholders in the family business, tensions can be increased for all concerned, not just the couple themselves. In this article we explore how the court deals with such shareholdings on divorce and what steps can be taken to minimise the impact and protect the family company.

Shareholdings on divorce

On divorce, shareholdings in the family business will be treated as an asset of the marriage and will form part of the court’s consideration about how to divide all of those assets, including the shareholding, to achieve fairness between the couple.

Before any decision is made, the shareholding would be valued, usually by a jointly appointed expert whose job it is to look at things like the value of the company overall, the extent to which a discount should be applied to a minority shareholding, how easy it would be to extract funds from the business, the effect such extraction would have on the business going forward and any tax to be paid on the sale or transfer of the shares or part of them.

Having established the value of the shares, the court will take into account various factors, such as the length of the marriage, the fact that the family business was established long before the couple got together, the fact that the business is the sole source of income.  However, as with the other assets of the couple, the court has the power to order their sale or transfer in part to the other spouse, if it considers appropriate to do so, in order to achieve fairness between the couple. Either of these scenarios can have significant implications for other members of the family and for the business itself.

So what can be done to minimise the impact of divorce and protect the shares?

Nuptial Agreements

Nuptial Agreements are one way to protect such shareholdings. A Pre-Nuptial Agreement before the couple marry can look to “ring fence” interest in the family business. If there are plans to transfer shares to one of the couple when the parties are already married, a Post Nuptial Agreement can be used to achieve the same end.

Shareholders Agreement

Steps can also be taken to restructure the business itself, by way of a Shareholders Agreement limiting how those shares can be held and by whom to include so called “bloodline” arrangements.

Get in touch with a Divorce Solicitor in Manchester

As part of our service, we offer comprehensive advice on wealth protection. If you wish to discuss any of the issues raised, please contact Senior Family Lawyer Colin Davies on  0161 838 8180 or at colindavies@kuits.com.

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