How to Protect your Business From Divorce

Posted 17th December 2020

Written by Rachel Baul - Senior Solicitor and Family Team Leader

Protecting your Business Assets From Divorce is Crucial.

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You may have set up the business with your ex-spouse, acquired the business during your marriage, or perhaps you’re preparing to protect your business assets in case of divorce. Here, we explore how to protect your business from divorce with pre and postnuptial agreements, what occurs during court proceedings and the importance of matrimonial assets.

How to Protect Your Business From Divorce

  • Pre and Postnuptial Agreements

When entering into a marriage or civil partnership, protecting your business assets in case of a divorce is an important situation to consider. To protect your business and matrimonial assets before marriage, you and your spouse could enter into a prenuptial agreement.  Planning ahead with pre-and postnuptial agreements can be helpful in limiting claims against the business. Your spouse agreeing not to make damaging claims against the business, should things go wrong, can be very helpful. A postnuptial agreement can be made during your marriage to protect your business assets in case of a divorce.

  • Matrimonial Assets During Court Proceedings

If you find yourself in a situation of protecting your business from divorce, the courts deal with each case on an individual basis. The Court will consider whether the business was set up before the marriage and by whom. For instance, if you or your family started the business before marriage, it could be argued that it isn’t a matrimonial asset. Other considerations will be whether or not your spouse has contributed to the business, even in the early days as well as if the business is joint or sole ownership.

The Courts decide whether a business is capital-rich and income poor, for instance, a farming business. Or a capital-poor and income rich business, such as in a consultancy. Courts don’t want to impact the viability of the business. However, they need to balance this against the needs of the family.

They will also consider the liquidity of business assets. Rather than withdraw capital to meet a lump sum order, the Court may look to award a maintenance order to minimise the impact on the day to day running of the business. The Court will also look to how the business is structured and the future plans for the business, For instance, whether you plan to pass the business onto the next generation, or if the business is one that you intend to sell when you retire or a ‘develop then sell’ business.

Matrimonial Assets Meaning

Protecting your business assets during a divorce is of the utmost importance as all assets are taken into account by both parties. Matrimonial assets are assets gained during the period of your marriage, including your pension, your family home as well as financial assets such as savings. Matrimonial assets can also include a family business. Private wealth is also considered, along with if the family home was used to secure business borrowing.

In England and Wales, any financial assets gained during a marriage is viewed in Court as belonging to both spouses. Matrimonial assets won’t necessarily be split equally between both parties. However, the Court will rule for a fair financial settlement.

It can be a daunting period protecting your business assets during a divorce; however, taking specialist legal advice as early as possible in a divorce is paramount. Please don’t hesitate to get in contact with our divorce and family law team. Our solicitors are experts in divorce and separation, with expertise in tailoring each case regarding business assets and divorce.