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Your Family Business and Divorce

When creating or forming your family business, it is easy to forget or delay creating a strategic plan to address or resolve any unforeseen issues that may arise, says Julie Tierney, Partner Edwards & Co Solicitors .

It may even be unthinkable any difficulties that may arise in the future could not be resolved amicably between the family business members.

In the event a member of the family business should unfortunately find themselves separating or divorcing, the absence of such a strategic plan or prior agreement may have a serious impact on the stability of the business and its future for all members. This is relevant not only for couples who both are part of the business, but for couples where only one spouse is a member of the business in question.

All incomes received and assets owned, whether partly or solely, by both spouses are taken in to account by the divorce court during proceedings. A valuation of the company as a whole will be undertaken by a forensic accountant to adduce what value can be attributed to either spouse’s interest in the business.

That value will thereafter be included in what is known as the ‘matrimonial pot’ to be divided. Although every effort is made to avoid an unnecessary sale of a business and/or shares, depending on the value of the other assets in the marriage, it may not be possible to prevent this and the difficult decision of selling may need to be addressed.

The best way to prevent such a devastating impact on any family business is to plan ahead. If family members are getting married, have them seek advice on obtaining a prenuptial agreement. It may also be advisable to enter into a robust Partnership or Shareholders Agreement to help provide some protection for the partners/shareholders, the family and the business.

If a family member is separating and none of the suggested measures have been taken in advance, seek legal advice from an experienced family lawyer at an early stage. This will help dispel any myths on the proceedings and provide a helpful guideline on how your business may be affected. Most importantly, any initial consultation will provide an outline of the potential costs involved.