Divorce And The Family Business

Published date13 July 2020
Subject MatterFamily and Matrimonial, Family Law, Divorce
Law FirmGiambrone & Partners
AuthorMs Annah Cheatham

Divorce is nearly always an upsetting experience and often becomes more distressing as the arrangements concerning finances and children progress. The situation can be considerably amplified when a family business is involved. Unraveling the assets of the couple from the starting point of a 50/50 split can soon descend into acrimony when the parties disagree on the level of entitlement and when there is a financially weaker spouse.

An entrepreneur with an existing family business is advised to protect the business before marriage by the use of a pre-nuptial or post-nuptial agreement to protect the assets of the business as part of succession planning and wealth management. The agreement can be revised over time if, say, the newlywed spouse, unconnected with the business, joins the firm and makes subsequently makes a significant contribution to the continuing success of the company. It is far better to have guidelines as to how the assets of the business are divided with the agreement of all parties.

A family business is not considered untouchable by the court when the financial arrangements are being decided following a divorce and the court's prime considerations are the financial needs of the couple. The court is unlikely to order a business to be sold to the detriment of the other owners in cases where the spouse is a joint shareholder unless there is no other viable solution. Whilst third parties such as shareholders are considered but the court's points of reference are:

  • the financial needs of the parties' and of any children of the marriage
  • compensation in the event of one party sacrificing their own capacity to earn to care for children or undertake any other responsibility that restricted their employment
  • fairly dividing the marital assets built up during the course of the marriage

The marital assets can include business interests developed during the marriage or the growth in value of a pre-existing business and can include assets held in trust.

Annah Cheatham, an associate in Giambrone's family team, commented "the court has wide-ranging powers and any decisions regarding a family business...

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