5 Ways To Protect Your Business Assets In A Divorce By Lucinda Holliday

Whilst the majority of business owners have insurance or contingency plans in place to protect their assets from an incident like theft or property damage, many fail to consider what would happen to their business in the unfortunate event of a marriage breakdown. 

For most business owners, their company is their most valuable asset, it is, therefore, imperative to consider the potential impact on a business if there is a divorce. 

Therefore, it is vital that those with business assets look at ways to protect their business, should they go through a separation. Here are some helpful steps to consider by head of family & divorce at Blaser Mills Law Lucinda Holliday.

Prenuptial agreement

One of the best ways to protect your business in the event of a divorce is to sign a prenuptial agreement before you get married. This is a document in which a couple outlines their rights in relation to property, debts, income and other assets such as businesses. It is a means of protecting pre-marriage assets and inheritance. 

In the eyes of the law, once married, the assets brought into the relationship by each individual become matrimonial assets unless specifically protected. The purpose of a prenuptial agreement is to define parties’ respective property rights during the course of the marriage to avoid costly litigation if the marriage subsequently breaks down. 

Both parties must take independent legal advice as this can avoid accusations further down the line if things do go wrong. They will also have to disclose their financial positions prior to the agreement.  

Postnuptial agreement

If you are already married, then you can protect your assets with a postnuptial agreement. If you believe your circumstances may change over the coming years and you want to protect your assets in a potential divorce then a postnuptial agreement will allow you to set out how assets should be dealt with if you do separately. 

However, it is important to note that although both prenuptial and postnuptial agreements are not strictly enforceable by the courts in England and Wales, they can, however, be a pivotal factor when the Court is dividing the matrimonial assets, as they clearly outline the intentions of both parties should the marriage break down. 

When signing either a prenuptial or postnuptial agreement, it is important to consult a reputable family and divorce lawyer who will be able to advise you on the agreement. It is essential that the agreement is reasonable because if the courts consider one clause to be unreasonable it could lead to the discreditation of the whole agreement. 

Household and business finances

You should keep household and business finances separate to avoid any doubt around which assets are classified as matrimonial and non-matrimonial. Keeping them as two separate entities will avoid any crossovers which could lead the business to be considered a matrimonial asset. 

Limiting your spouse’s involvement in the business

Think carefully about whether you want to involve your spouse in your business. For example, if your spouse is a partner in your business then a d they could argue that they do have an interest in the business and claim against it and any capital held by the business. 

Some business owners employ their spouse, which can also lead to complications should a divorce occur. Going through a separation is a difficult and often stressful time for all involved and tensions can run high. If your spouse is an employee of your business, it could lead to further problems as it may be impossible for them to continue working. 

Your spouse could argue they were an integral part of the success of the business and they should, therefore, receive a share of its value. Even if you have signed a prenuptial or postnuptial agreement, if you employ your spouse, you could be opening yourself up to disputes. 

Do not panic

If your marriage has broken down, it is important that you do not transfer assets out of the business as a way of protecting them, as this could be detrimental. If either your spouse or the family court becomes aware of the transferring of assets, it could be deemed as a deliberate attempt to avoid financial claims. This could, in turn, result in you receiving a harsher reaction from the judge as it could be deemed as financial misconduct or a risk of the other side applying for a freezing injunction which could jeopardise the successful operation of the business. 

The comments above assume that only one or the other of you are involved in the business. If both you and your spouse are and have always been an integral part of the business then you will need to consider carefully whether you can still operate and manage the business together and if not, how the business should be treated as part of the division of the assets. 

When considering how to protect your business and assets should a divorce occur, seeking legal advice is vital. By speaking to a lawyer sooner rather than later, you can help limit the risk a divorce could have on your business’ interests.