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Protecting your business

Why do I need to protect my business?

There are few things worse for a business than the owner getting divorced.

The business itself comes under intense scrutiny. How much is it worth? How much income can it produce? Should it be producing more? The business may well be valued, and that process in itself involves some high stakes, since the outcome will be highly influential in court or in discussion.

Other people may have different ideas about your business that conflict with your own plans. It is often the case that judges will look at liquidity within a business and the possibility of that being paid out to meet housing or other claims of the wider family on divorce. This can be particularly problematic if that liquidity was going to be used as the “seed corn” for future business development.

MinimizeWhat should I do first?

This is a specialised area of law and it is important to get the right legal advice. To help with this, you may find our checklist for presenting your business case on divorce useful.

Early on, you and your solicitor must get a firm grip on this aspect of your case. That way, you stand a better chance of directing the way the case goes, rather than merely reacting to what the court is asking or what your spouse is demanding.

MinimizeWhat do I need to consider when protecting my business ahead of divorce?

Protecting your business before a divorce requires careful advice. If you are seen to be moving assets or shareholdings simply to avoid future claims on divorce then this will damage your case considerably. The courts also have powers to set aside transactions that are specifically designed to do this.

It is worth bearing in mind a number of broad principles:

  • A pre-nuptial agreement or post-nuptial agreement can be helpful in limiting claims against a business. It may be too late by the time you get to the divorce, for obvious reasons. But if you have planned well ahead, at the time you get married or subsequently (perhaps when inheriting a business), getting the agreement of your spouse not to make damaging claims against the business can be helpful.
  • Do not mix your business assets with your private assets unless absolutely necessary. Keeping the business entirely independent of your private wealth can help on divorce. It will help, too, for example, if the family home has not been used to secure borrowing within the business.
  • It is sometimes tempting to involve a spouse in the business, not least for tax purposes. There is a balance to be struck; involving your spouse helps them to make a claim, by having been involved in the business and so having contributed to its success. Against that, it is a pity not to use income tax reliefs by appointing them as director, company secretary, or another role within the business.
  • Sharing ownership of a business with outsiders helps on divorce. If a business is 100% owned by one spouse who is getting divorced, then the courts will treat it just like any other asset – to be divided or shared, unless there are good reasons not to. If the business is jointly owned with other shareholders or partners then the court is less likely to take steps which would damage the livelihoods of the other shareholders or partners.

MaximizeCan I get my company accountant to value the business?

MaximizeShould I fight or should I negotiate the claims against the business on divorce?

MaximizeWhat should I consider next?

How to communicate effectively

To help you to communicate effectively with your former partner when resolving disputes, we have partnered with iMA Strategies to identify which communication and engagement style you have. 

> Take the questionnaire