Going through a divorce is stressful enough without having to worry about what will happen to your business. For business owners, a divorce isn’t just about splitting up the house and bank accounts – the company you built is often one of the most valuable assets on the line.
Dividing up business assets like shares, equipment, or property or forcing a quick sale can severely damage your company’s value and operations. But with the right strategies, you can protect your business during a divorce and maintain control over your financial future.
While divorce may mark the end of a marriage, it doesn’t have to spell the end of a successful company. With foresight and preparation, your business can remain an intact asset.
Why Does a Business Owner Need a Protection Strategy During Divorce?
For business owners, a divorce can quickly become about more than just the division of personal assets. Businesses are valuable assets that often represent years of hard work, personal investment, and financial risk. Losing part or all of a business in a divorce settlement could be financially devastating for an owner.
Beyond just the financial implications, many business owners have strong emotional ties to the company they built. The business may be their life’s work or legacy they hope to pass on. Giving up or dividing the business can feel like more than just losing money – it may seem like losing a part of their identity.
There are also operational concerns around dividing business assets in a divorce. If a business needs to be sold or divided too quickly, it can severely damage day-to-day operations and decrease the company’s overall value. Employees may become anxious and distracted. Important deals or projects may be put on hold. Revenue and profits may dip.
For all these reasons, business owners need to be proactive in developing a plan to maintain control and protect their company throughout the divorce process. Having strategies to preserve value and operations can limit the divorce’s long-term financial and emotional impact. With proper planning, the business can stay stable and intact.
How Are Assets Divided in UK Divorces?
In the UK, there are general principles courts follow when dividing assets in a divorce:
- The overarching goal is to achieve fairness and equal division of marital assets. This doesn’t always mean an exactly 50/50 split, but courts aim for some version of equality.
- All assets acquired during the marriage are considered marital property that can be divided. This includes property, money, investments, pensions, and business assets like shares in a company or equipment.
- The court has wide discretion to decide which spouse gets which assets. The needs and situation of any children are considered. For example, one spouse may get the family home if they have custody.
- Earning ability and financial contributions are also considered. A spouse that puts more money into acquiring assets may get a larger share.
- Separate property owned before the marriage is usually exempt. But it may lose its exempt status if it becomes mingled with marital property.
- Pensions are frequently split up through pension-sharing orders. The court determines percentages of the pension funds each spouse gets.
- Businesses can be divided by awarding each spouse certain shares in the company. Equipment and property may also be divided up.
The court looks at each spouse’s situation holistically to find an equitable division. But in general, almost all assets are on the table to split. So, business owners need to be proactive about protecting not only their company but also the overall assets.
Strategies for Protecting the Business
There are several strategies business owners can use to protect their company during a divorce:
- Get the business valued – A professional business valuation provides a clear picture of what the entire business is worth. This makes it easier to divide shares fairly or set a sale price.
- Keep business and personal finances separate – Avoid mingling business assets and expenses with marital property. Separate bank accounts and accounting makes it simpler to sort out what belongs to the business.
- Create a shareholders agreement – A shareholders agreement spells out ownership percentages and succession plans. This can limit issues if a share of the business needs to be divided between spouses.
- Communicate with employees – Being transparent and communicating any potential changes to employees can prevent uncertainty. Ensure they stay focused on operations.
- Time initiating divorce carefully – If possible, avoid starting the divorce process right before major deals are closing or big projects are launching. Wait for a stable period.
- Consider tax implications – Splitting assets may trigger capital gains taxes or other taxes. Planning and timing divisions strategically can minimise tax consequences.
- Seek legal protections – Laws like court orders can protect the business from assets being sold off prematurely or without consent.
With the right preparation, business owners can limit damage and maintain control over their company. The key is being proactive, not reactive.
Safeguarding Business Operations
Divorce proceedings can understandably be distracting for a business owner. However, it is crucial to stay focused on core business operations throughout the process. Allowing performance metrics, new deals, client relationships, or product quality to slip could significantly harm the value of the company.
The business owner should consider transferring some daily oversight responsibilities to trusted senior managers temporarily. However, the owner should still remain engaged in major decisions and keep communicating with key partners and vendors to reassure them that operations will not be negatively impacted.
Setting up contingency plans for important projects and deals is also wise in case the owner needs to be out of the office more frequently for legal reasons. The day-to-day workings of a business are complex, so putting protections in place through delegation, communication, and planning is essential. Maintaining stability builds confidence in employees, customers, and vendors that the company remains strong despite the challenges of the owner’s divorce.
Going through a divorce is undoubtedly difficult for any business owner. Not only are they dealing with a major life transition personally, but their business is a critically important asset they likely want to protect. While the challenges may seem overwhelming, creating a thoughtful protection strategy with help from legal and financial professionals can limit the damage.
With some foresight and preparation, business owners can take proactive steps to preserve their company’s value, operations, and legacy for the future. Though divorce necessitates change, planning carefully when dividing assets can set the business up to emerge intact. Implementing strategies to maintain control and stability means the company can continue to thrive in the years ahead.