Protecting your business from the possible consequences of divorce

By: Guest contributor

Date: 12 March 2014

Protecting your business from the possible consequences of divorce/A divorce coupleNearly half of all marriages now end in divorce and the starting point for a division of marital assets is an equal sharing between the couple (depending on individual cases). Those assets can include your business or interest in a business.

Thinking about your marriage breaking down can be difficult, but it is important to consider what steps you can take now to protect your business interests in the event of a divorce.

Enter into a nuptial agreement

This is a written agreement signed by a couple setting out what they want to happen in respect of their financial affairs if their marriage breaks down. It can specify that a business should be retained by one party to the marriage or that its value should be excluded in the event of a divorce. These agreements can be either written before (ie pre-nuptial) or after (ie post-nuptial) the marriage takes place.

Set up a trust or family investment company

Putting shares in a business into a trust can help protect them for future generations in the event of a divorce. You should seek specialist legal advice on the structure of the trust, because it will have an effect on how it is treated in the event of a divorce.

A family investment company is a private investment company designed to be similar to a discretionary trust. The advantage over a trust is that it can still offer protection and flexibility when set up during the marriage.

Don't make the business your personal bank account

Your books should show that the business is run independently for the benefit of the company, rather than a party to a marriage. If you use your business bank account as a personal account, the court may assume that this will continue, meaning your partner may be entitled to a portion of the income.

Confidentiality

You will be expected to provide full details of your business interests in the event of a divorce, which should be backed up by paperwork. Clear and organised historical records can provide a paper trail that shows the court exactly how the business has been run and the involvement both partners have had. It will be better if you present this information, rather than your spouse, where details can be misinterpreted.

Giving thought to these issues before a separation or divorce can give small-business owners the best opportunity to protect their business assets and interests.

This blog was provided by Vicki McLynn from Pannone Solicitors.

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