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.