When negotiating a financial settlement in divorce proceedings or dissolution or Civil Partnerships, all the assets of both parties are taken into account, including property, investments and pensions. This also includes business interests.
Establishing the value of business interests can be expensive and take a long time. Experts, including accountants and surveyors, are sometimes instructed to prepare reports or valuations. If one party does not agree with the report prepared, questions may be asked, which increases the cost and time involved.
Also, when deciding on a settlement, the Court has far reaching powers, including the sale or transfer of business interests. The Court may also order that funds be extracted from a business by one spouse to pay the other.
To limit the potential future risks, certain things can be put in place. Legal, financial and tax advice must be taken prior to taking such steps, which include:
The terms of a Shareholders’ Agreement can stipulate that shares must be held only by family members and not their spouses and/or if shares are sold, they must first be offered to existing shareholders. The Articles of Association for a business can also provide that should a shareholder divorce, their shares are to be bought back by the business rather than sold elsewhere.
The terms of a Prenuptial Agreement or Postnuptial Agreement can seek to ring-fence business assets from financial settlements.
Such agreements are not currently upheld by the Courts in England and Wales, but if they are prepared properly and in accordance with current case law and guidance, they can carry considerable weight.
Provided the partner has no involvement in the business, the shares are not in the pot for division. Cohabitees do not have the same rights as married couples.