How Divorce Can Impact a Business Owner

Going through a divorce can be an emotionally draining experience for anyone, but if you're a business owner, the process can also become even more costly and complex. The division of assets that often needs to occur in order 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. In this blog post, we will discuss the various ways in which divorce can impact a business owner, including the legal, financial and emotional implications that one must consider.

Legal Implications

When it comes to the financial implications of a divorce, questions about how to divide your property and to obtain valuations of the assets will be a primary concern. In most cases, even if your spouse has not been involved in the business, the business will be considered as part of the marital property to be taken into account in a divorce settlement. There are of course exceptions, depending on the individual circumstances which you would need to discuss with your lawyer. It is also important to consider how the business is structured and the role of other directors and shareholders. It is normal for the parties to agree on the instruction of a joint expert to value the business, which involves looking at the company's financial statements, assets and liabilities, earnings and profits. This can then be used to consider the options.

Financial Implications

Once a business has been valued, there are various ways of dealing with how to structure a settlement of the business element in a financial settlement. The amount of the other party’s interest will need to be determined, depending on all of the circumstances of the case. It may be appropriate for the business owner to offer to make payment of a lump sum in lieu of the other party’s interest in the business either by utilising other 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 assets so that the other party 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. With firm foundations in place, it will help get you on track to get back into the productive routine of running your own business.

Seek Professional Support

Divorce can take a toll on mental health and business owners must prioritise their well-being while managing their businesses. Seeking the support of a therapist or counsellor can go a long way in reducing stress and improving mental health. Additionally, if children are involved, a family lawyer can help business owners navigate complicated family law matters while also juggling their businesses.

Develop a Financial Plan

Divorce can wreak havoc on finances, so developing a solid financial plan is essential. Business owners should review their financial statements to determine how much they can afford to pay in spousal and child support, dividing assets and other costs. Creating a budget and seeking the advice of a lawyer and a financial advisor can also help business owners prepare for the financial changes ahead.

Maintain Open Communication with a Spouse

Divorce can be a turbulent time in any relationship and if you are business owners 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. Business owners must be transparent about business finances and legal proceedings and it's helpful to establish clear lines of communication to avoid complications later.

Navigate Changes in Business Ownership and Plan for the possibility of a marriage breakdown

Divorce can have implications for the ownership of a business, and to protect your co directors, 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. A shareholders agreement for example which sets out the mechanics for dealing with what would happen 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 business planning before marriage or during the marriage, but before it has broken down.

Business Continuity

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.

Don't hesitate to schedule a free consultation today by calling 0330 912 1009 or emailing and let us put together an effective plan for you!


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