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The family business and divorce: Will it have to be sold?

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We deal with lots of divorce cases that involve a family business. Often, the business will be owned and managed by one spouse, while the other may not be involved at all; however, that does not stop the business from being a marital asset that is subject to sharing in a divorce settlement. Appropriately valuing the business for the divorce is likely to be necessary.

Understandably the business owning spouse may be concerned about the impact of the divorce on the business, including whether it would have to be sold as part of a financial settlement.

The family business can often have funded the marital standard of living and, if so, may be expected (or required) to continue to fund both parties’ lifestyles post-divorce. It is in neither parties’ interests for the business to suffer, and often neither party desires a sale, if it can be avoided.

How a divorce can impact a business

A divorce can impact a business in a number of ways. A divorcing business owner may be distracted from the running of the business by the divorce, with a resulting impact on profits, especially if there are lengthy or acrimonious court proceedings. There can be an impact on cash flow, or a stunt on growth of the business, if funds have to be extracted from the business to meet the divorce settlement.

With the right approach and assistance in cases involving a family business, a negotiated out-of-court settlement will usually be much better for both parties. As family lawyers, we are committed to achieving such a settlement wherever possible.

If the case goes to Court

If the case goes through Court, not only can it be an unpleasant experience, but Judges in the Family Court have very wide discretion when determining a financial settlement at a Final Hearing. A Judge could order something that neither party wants.

A Judge could order that a business be sold, though this is rarely the outcome in out-of-court settlements agreed between the parties. These are often focused on achieving a solution that enables the business to continue with as little disruption as possible.

Whilst a Judge will not look to create problems, they are guided by statutory factors and may not have all of the information available (nor the time or inclination) to formulate a creative solution in the best interests of the business as well as the parties.

Seeking the right advice

Whether in or out of Court, the first step is for us to seek expert opinion on the value of the business interest that exists, before we then negotiate the extent of the spouse’s claims using our experience of case law.

Often, the practical way in which funds can be raised to meet a settlement will need detailed consideration and advice, and we would usually work with other advisors, such as accountants, to find out the options, with a view to finding the most efficient way in which this can be done.

If a settlement can be agreed, the terms of the Court Order resolving the financial claims on the divorce (called a ‘Consent Order’) can be determined by the parties, through their Solicitors, and can be as detailed as necessary to provide the parties’ desired outcome, subject to final approval by a Family Court Judge.

Divorces involving a family business can be complex to resolve including the valuing of a business for divorce and so it is essential that specialist advice is sought as early as possible, not just when considering Court proceedings, but for assistance with agreeing a settlement, in the interests of avoiding them.

If you’d like to discuss how a divorce can impact a family business, please contact our Family Team.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.