How Divorce Can Impact a Business Owner
Article updated: 10/11/2023
Going through a divorce can be an emotionally draining experience for anyone, but if you're a business owner, the process can be even more costly and complex. The division of assets that often needs to occur to reach an equitable settlement means that your company may be affected. To ensure that you're fully prepared before entering this challenging situation, we will look at how divorce could potentially affect your business and how best to manage it going forward.
At the time of a divorce, one matter of primary concern is the question of how to divide your property. In most cases, even if your spouse has not been involved in the business, the business will be seen as part of the marital property to be considered in a divorce settlement.
There are of course exceptions, depending on the individual circumstances which you would need to discuss with your lawyer. It will also be important to consider with your lawyer how the business is structured and the role of other directors and shareholders as this may impact on its value.
It is normal for the parties to agree on the instruction of a joint expert to value the business. This involves looking at the company's financial statements, assets and liabilities, and earnings and profits. Once obtained, you can then consider the options.
Once a business has been valued, there are a number of options to be considered. Firstly, the amount of the other party’s interest will need to be determined, which will depend on all of the circumstances of the case. If appropriate, a lump sum may be offered in lieu of the other party’s interest. This may be raised by utilising any available cash assets, or by raising a loan against the value of the business. Another option could be to offer to offset the value of the other party’s interest in the business against other marital assets so that they would retain a larger share of another marital asset.
Given the complexity involved, it's advisable to seek the expertise of a specialist lawyer early on to consider the best way to settle the business element.
Emotional Implications and Strategies for Coping
To help anyone facing the emotional challenges caused by the stress of the divorce and financial proceedings, here are five key strategies for managing your affairs as a business owner. Having firm foundations in place will help you maintain the productive running of your business.
Seek Professional Support
Divorce can be stressful and especially so if your business may be affected, so it is important to recognise the toll it can have on your mental health and seek appropriate therapeutic support if necessary. Although it is an individual choice, the support of a therapist or counsellor can go a long way in reducing stress and improving mental health. A family lawyer will also help you to navigate the legal and practical demands that are thrown up by a divorce whilst also having to deal with the management of your business.
Develop a Financial Plan
Divorce will impact your finances, so developing a solid financial plan to review and determine how much can be afforded to pay in spousal and child support, and the costs of dividing assets and other costs will be essential. Creating a budget and seeking the advice of a lawyer and a financial advisor early on will help business owners prepare for the financial changes ahead.
Maintain Open Communication with a Spouse
If you are in business with your former spouse, it is especially important to maintain open communication with your spouse during the process to ensure that business operations continue smoothly. All parties in a divorce must be transparent about their finances which includes a business. By establishing clear lines of communication, this will avoid complications in the future.
Navigate Changes in Business Ownership and Plan for the possibility of a marriage breakdown
Before divorce proceedings are contemplated it is essential to make sure there is legal clarity on the ownership of the business and the rights of the shareholders. For example, to obtain clarity for you and your co directors, having a shareholder’s agreement which sets out the mechanics for how to deal with the situation if one shareholder had to sell or transfer their shareholding would give such clarity.
It may also be possible to protect the business by considering entering into a pre-nuptial or post nuptial agreement before a marriage breaks down.
Business owners should seek the advice of a family lawyer or company lawyer to assist with these matters before marriage or during the marriage, but before it has broken down.
Keeping continuity in your business operations, planning for succession, and navigating changes in business ownership is key. Communication with stakeholders and employees is essential and legal advice should be sought, as necessary. By developing a clear succession plan early on and having a strategy for changes in ownership, you can ensure that your business remains stable and continues to thrive during and after the divorce process. With the right support and planning, your business can weather the upheaval of divorce and emerge stronger than ever.
Contact Parfitt Cresswell for Help Transitioning After Your Divorce
At Parfitt Cresswell, our experienced team of lawyers in the departments of family and company law will work to achieve the best outcome possible for you —helping you protect your business so you can focus on building your future.
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