Setting up a business with a spouse/civil partner can be a great move, as can bringing a partner into the business as an employee or fellow director.
But what happens if the relationship turns sour? Whether the stress of both working and living together causes fractures in the relationship or whether other reasons entirely are behind the breakdown, having work and home life so closely intertwined can have wide-reaching repercussions when things go wrong.
So what are the options, and what is the best advice for married couples and civil partners that operate a business together?
Legal documentation
Upon formalising a business relationship, it is advisable that a partnership or a shareholder’s agreement be put in place. Such agreements protect the interests of both parties (and other parties that may have an interest in the business) because they help define the couple’s roles as business partners and dictate an outcome in the business world. In reality, as business relationships are usually formalised when a personal relationship is going well, it is uncommon for a couple to have commercial agreements in place.
From a family law perspective, where there is no legal documentation, joint assets acquired during the marriage are combined and split between the parties upon divorce as they form part of the “matrimonial pot”. This may be fair for couples with equal roles in a business’s operations. But for others, where one person has contributed more than the other, this can be a bitter pill to swallow.
It is important to point out that a pre-nuptial agreement that reflects the partnership or shareholders’ agreement is also advisable for completeness. In the absence of a prenup, or where a prenup lays out an alternative set of plans, the family courts might override any business contracts.
Keep on top of the paperwork.
Keeping your paperwork up to date and your accounts in order is advisable in any event. But in the case of business-owning spouses/civil partners separating, paperwork can provide vital evidence that can be used to support your case. For example, one partner may have supplied most of the initial capital to set up the business or perhaps injected cash at various stages. But without documentation to show this, it can be hard to prove, and therefore the chance of recovering your investment is low.
The future of the business
Every business is different, and factors, including the presence of other Directors or staff and how involved the married couple/civil partners are in the day-to-day running of the business, will likely determine the company’s long-term future. In general, there are three potential outcomes:
- one spouse will buy the other out
- the couple will continue to work together
- the business will be forced to shut down.
A joint decision will have to be made when a couple owns a business on a 50/50 basis. Unfortunately, where a decision cannot be reached, a business will usually be forced to close, resulting in the potential loss of livelihood for both parties.
Day-to-day practicalities
When a couple decides to divorce or separate, it can be emotionally stressful at the best of times. On top of the strains at home, if you still have to work together, even if only for a short period, it can be easy for your emotions to get the better of you.
From a practical perspective, it’s important to try to keep things ‘business as usual’ – particularly in front of colleagues, clients or other stakeholders. Discussions about the business’s future will need to occur, but be sure that these occur behind closed doors, at least until some decisions about the future have been made.
Regarding such discussions, using a mediator can be helpful for both sides. Mediated discussion can aid amicability, thereby increasing the likelihood that a way forward that suits both parties and the business can be reached.
Aiming to keep things outside the courts is likely in your best interests. Divorce cases involving a business can be very complex, and where so many factors are involved, leaving it to the courts can result in an outcome that benefits no one. Where both parties have a good team of lawyers and accountants, it can be possible to resolve any issues and reach an agreement.
O’Donnell Solicitors have advised many business owners throughout divorce proceedings. Our family team work closely alongside our commercial law team in such cases, helping to navigate the various possible outcomes to reach an agreeable arrangement for all parties. Similarly, we can help those setting up a business or who are planning on marriage/civil ceremony to ensure their interests are protected.
Anthony Jones is the Director and Head of Family at O’Donnell Solicitors and is a Resolution Accredited Specialist. For more information, please get in touch with him on 0161 641 4555 or email anthony@odonnellsolicitors.co.uk.
