Protecting the Goose that Lays the Golden Egg – your options when marital conflict hits the family business

If you are divorcing and you have a family business, don’t assume that it has to be sold or wound up. Although a sale of the business is one option, it may not be an attractive option for one or both of you. There are many family businesses which provide a valuable income stream for the family but are not capable of being sold or only have a very modest capital value. Why kill the goose that lays the golden egg? A settlement can be structured so that the spouse involved in the business is obliged to pay maintenance from the business income to the other party and/or a percentage share of the proceeds of sale of the business if and when the business is sold in the future.

If both of you are involved in the business as either directors and/or shareholders, whilst matters may be dealt with on the basis that one of you will resign and assign their shares to the other in return for a lump sum payment, this doesn’t have to be the case. Whilst there are obvious difficulties in continuing to run a business together when a relationship has broken down, there is no real reason why you shouldn’t just carry on as a normal, if you can make it work. You will need to make sure that each party’s role in the company is strictly defined. You may also wish to consider the preparation of shareholders’ agreements and possibly the issue of different classes of shares, to define who gets a vote on which issues and who is entitled to dividends at what level etc. This will minimise the scope for disagreement in the future.

Many companies operate Self Invested Personal Pension Schemes (SIPPS) for their directors. Whilst it is possible for a pension sharing order to be made in respect of a SIPP, this can be tricky if one of the major investments in the SIPP is commercial premises which are needed for the business.

It is important to consult the company accountant at an early stage so that you can explore all of the possibilities. If you are attending family mediation and you both have a relationship of trust with the company accountant, you may wish to consider involving him/her in the mediation sessions. It is also important to take advice about the tax consequences of your proposals with regard to the family business.

For further information on all aspects of family law, please contact our Head of Family Law, Joanna Toloczko at jtoloczko@meaby.co.uk or on 020 3861 5155.