Family Law for Business Owners: Top Tips from Dani Taylor

Family Law issues come in a variety of shapes and sizes, but they can all be impactful on business owners. Courts have wide ranging powers in determining how assets (including businesses) can be valued and distributed on divorce. It can be important to consider this early on to mitigate any potential damage to the business on any family breakdown.

Here are some of our top tips to consider as a business owner:

Ownership of the business

Consider family implications from the very start. Whether it is a family business or not, family law can impact your business. Business owners will often have families and a breakdown in family relationships can lead to a business being considered within financial proceedings on divorce.

When you first set up a business, it is important to consider the structure of that business and how you intend to deal with ownership. You should take advice in respect of the available business structures (including partnerships and limited companies) to decide the best fit.

Family lawyers can be involved at this early stage in advising how the court could approach a business within family proceedings. When setting up the business, owners should consider what would happen with the business in the event of a breakdown in the business relationships (between partners or shareholders) or their respective family relationships.

Consider how decisions are made and the control of the business. There can be complications on the breakdown of a relationship where both spouses have ownership and some control of the same business.

If the business is likely to have a value (either in capital, based on turnover or goodwill), then it may be helpful to agree how the business would be appropriately valued in the future and what mechanisms there would be for an owner to exit the business or extract capital. This should be recorded in formal documentation for the business. However, take care in doing so, as once this is formalised those valuation mechanisms would apply for all purposes (not just in any family proceedings), so give this proper consideration.

Consider whether there are any pre-emption rights on shares so that existing owners can purchase the shares from an outgoing owner or to prevent a court ordering a transfer of shares to a spouse on divorce.

Dealing with employees

Where employees are not family members or shareholders, you may consider that their personal circumstances will not be important to the business. However, employees experiencing a relationship breakdown can disrupt business. They may experience stress and anxiety which impacts on their ability to work or causes them to make errors. Reduced productivity, sick leave and errors can cost businesses substantially.

It can help to have clear signposting for staff for where they can get advice and assistance in dealing with family issues to reduce stress and ensure they are supported. Having clear employment contracts and policies dealing with performance and sickness will also be helpful.

Employing family members is not unusual and they can often provide helpful roles. However, it is often helpful to formalise employment contracts and job descriptions, even with family members. This makes the terms of the employment clear so that expectations are set out at an early stage. A party’s employment may also be dealt with within any divorce proceedings if a spouse is to resign from their role within the business as part of a financial settlement (where that is a sensible outcome).

Before a marriage

If you are a business owner or have any significant pre-marital assets that you wish to protect, it may be beneficial to take advice from a family lawyer in respect of a pre-nuptial agreement. Pre-nups are becoming increasingly common in England and Wales. If they are entered into in the correct way, are fair and meet both parties’ reasonable needs then pre-nuptial agreements are increasingly upheld by courts in

England and Wales. Whilst they may not appear to be romantic documents, they can improve communication between marrying couples, create certainty, empower couples to decide what the right outcome is for them and reduce legal costs on relationship breakdown. They can set out clear expectations as to what would happen with your business on divorce.

After a marriage (during a happy relationship)

Equally, after you have married, you can enter into a post-nuptial agreement. This is much the same as a pre-nup but takes place after the marriage.

On separation

It would be helpful to have discussions early on about whether there is any intrinsic value in a business and whether this will need to be considered on separation. Agreeing whether there needs to be a valuation and the mechanism for that valuation at an early stage can significantly decrease legal costs in resolving financial matters on divorce.