It is a common misconception that if your company is a limited company, it is a separate legal entity and therefore a divorce will not directly impact your business or the other shareholders or its directors. However, there are measures that can be put in place to ensure that it is less likely for this to become an issue in the event that one director/shareholder has a divorce. Insufficient consideration is often given to the potentially serious impact a divorce may have on a business structure.
Here in this article, we worked with Aticus Law, the Expert Family Law Solicitors for Manchester, to explore the steps that can be taken to divorce‑proof your business.
Many couples enter into a Prenuptial Agreement before they get married, or a Postnuptial Agreement after marriage, as it is a sensible way to plan for the future in the unfortunate event of a divorce. A Prenuptial/Postnuptial Agreement is simply an agreement made between a couple concerning the ownership of their respective assets should the marriage fail.
Alternatives to Prenuptial Agreements
If an agreement with your partner/spouse is not an option, you want to consider the following:
1) Make sure you define within a Shareholders Agreement what matters require the consent of shareholders.
2) Include within a Shareholders Agreement a clause for valuing the shareholding in a divorce scenario.
3) Ensure there are confidentiality provisions in place to prevent any intellectual property or other commercially sensitive information being disclosed.
4) Where relevant it can be helpful to keep documentation and a clear paper trail which, if necessary, could be presented within a divorce as evidence that certain assets are not merely being held on trust for a spouse, and that the spouse is not the true beneficial owner if that is the case.
Similar to a Prenuptial Agreement if you are looking to vary the terms of, or set up, a Shareholders Agreement in anticipation of marriage, the terms should be agreed as far in advance of the wedding date as possible. There must be no pressure put on anyone to sign up to the terms, there should be detailed financial disclosure exchanged and anyone signing up to the agreement.
Dividing a business in divorce is complex and taking legal, as well as financial, advice is vital. Seeking advice from a lawyer sooner rather than later is often the best way to help limit the risk a potential divorce could have on your company interests.