Often, during a marriage, both spouses will be part of the family business. Sometimes both will play an active role in the day-to-day running of a business, and sometimes one spouse may take a minor role, or be part of the business, only for tax efficiency purposes.
Where one spouse is employed in a business, this may have been arranged on the advice of the Accountant for the business, as it can be a tax efficient way, during a marriage, to extract funds from the business.
Consideration will need to be given as to the termination of that employment status (as part of the severing of financial ties between divorcing spouses), and consideration given as to any contract which may exist. It is important to consider the spouse’s employee status and the consequential rights flowing from that, as a business owner doesn’t want to be facing an employment tribunal case, and divorce proceedings. Matters such as termination payments, and pension provision, needs to be carefully considered and addressed, and confirmed in a Settlement Agreement. If any termination payment is considered excessive, which is not commensurate with the spouse’s pay, this may be challenged by HM Revenue and Customs. It therefore cannot be used as a way to pay the exiting spouse a lump sum as part of the divorce settlement, and any settlement agreement must be reasonable and proportionate.
If the exiting spouse has shares in the business, these can be transferred under Section 24(1)(a) of the Matrimonial Causes Act 1973 (if the spouse is not willing to transfer them), and often this is dealt with at the conclusion of a matter. It is rare for a spouse to transfer shares during the course of the proceedings.However, there may be an encouragement to do this, due to tax consequences which may arise if the transfer is made later, and this is something your lawyer or accountant can offer specific advice on.
There are other practical considerations when looking at businesses on divorce, including whether there is a market for the shares in the company (or, for example, if the shares can only be sold to other family members or shareholders). There are also questions as to how money may be raised from a business, without impacting the running of the business, and what impact there would be on the company, if it was sold. This is something a Single Joint Expert can advise upon
The spouse may hold confidential business information, which can be protected as part of the financial agreement, with the exiting spouse giving an undertaking (which is an enforceable legal promise) not to release confidential information, and protect the future of the business.
The spouse may also hold confidential documentation relating to the business, and the return of such documentation (whether physical or stored electronically) can also be arranged as part of the settlement.
It is vital to have a clear, open and frank discussion with your lawyer regarding the business, as if they do not fully understand the nature, history of the business and your concerns, they may not be able to advise you fully.
If you need help navigating a divorce or separation you can contact our experienced Family team at info@brethertons.co.uk or you can phone 01295 270999 (Banbury Office), 01869 252161 (Bicester Office), 01788 579579 (Rugby Office) or 01242 472747 (Cheltenham).
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