Divorce and the Family Business

No one will argue that divorce can be a challenging and emotional time for any couple. When a family business is involved, the complexities of dividing assets can further complicate the process. Today we take a closer look at “Divorce and the Family Business” by exploring some underlying factors and outlining some options you may have about how to deal with a family business in the event of a divorce.

Understanding the Role of a Family Business on Divorce

In the scenario of a divorce involving a family business, the key concern is determining how the business will be divided between the spouses. The division of assets aims to achieve fairness, considering the contributions, needs, and circumstances of both parties involved.

Factors Considered in Asset Division:

A court cab determine what part of the business is a marital asset and what, if any, is non-marital. Remember that equal weight is given to roles taken during a marriage. So only one spouse working on the family business during a marriage, whilst the other raised the children, would not in itself make the family business a non-marital asset. When the business started and the length of the marriage would play more of a contribution in determining any non-marital part of the business.

Section 25 factors apply to a family business, as they do to any other marital asset, irrespective of the ownership of that business:

• Needs and Welfare:

The court takes into account the future needs and welfare of both spouses and any dependent children. This encompasses housing requirements, income, ongoing financial responsibilities, and standard of living. Balancing these factors ensures a fair and equitable outcome for all parties involved.

• Valuation:

The court will assess the value of the family business. This often involves engaging professionals such as forensic accountants or business valuation experts to determine its worth. Valuation may consider factors such as income, assets, market value, and future potential. Reliance on one person in the business will impact on the valuation. For example, a contractor using a limited company to manage their services would not be of equal value to a small business that could operate just as effectively without its owner.

• Contributions:

The court examines the contributions made by each spouse to the family business. This includes financial investments, effort, skills, and expertise. The spouse who actively participated in the growth and management of the business is likely to be recognised as having made significant contributions.

• Non-Matrimonial Assets:

Non-matrimonial assets, such as properties or investments acquired before the marriage or through inheritance, may be treated separately from matrimonial assets. However, the court may consider how these assets have been used during the marriage and if they have become co-mingled with marital assets.

• Ownership:

Only the shares or part of the business in the name of the spouse can be valued as an asset. For example if the business is a partnership with a friend, then the value of the business will be divided by half and that part will be considered as a marital asset.

Benefits of Family Mediation in Resolving Family Business Disputes

By utilising a platform like Family Mediation, divorcing spouses can navigate the complexities of dividing a family business in a manner that is cost-effective, confidential, and preserves the long-term viability of the business. Let’s take a closer look at a few reasons why.

Customised Solutions

It allows couples to have control over the outcome of their dispute, including the division of a family business. With the assistance of a family mediator, the divorcing spouses can explore creative and flexible solutions that meet the unique needs and circumstances of their situation. This individualised approach often leads to more satisfactory and sustainable agreements.

Preserving Relationships

The process aims to maintain or rebuild positive relationships between divorcing spouses, which is particularly important in cases involving a family business. By fostering open and respectful dialogue, mediation provides a platform for effective communication, minimizing hostility, and enabling ongoing cooperation, if required, for the success of the business.

Cost-Effectiveness

Family mediation is generally far less expensive than court proceedings. Family mediation sessions are usually shorter in duration, reducing legal fees and court costs. Additionally, resolving disputes through family mediation can potentially save both parties the financial strain and uncertainty associated with an extended court battle.

Confidentiality

It offers a confidential environment where the parties can freely discuss sensitive issues related to the family business. Unlike court proceedings, which can be a matter of public record, family mediation sessions remain private. This confidentiality fosters a safe space for open and honest discussions, encouraging the parties to freely share information and concerns.

Preservation of the Family Business

Family mediation prioritises preserving the family business as much as possible. The mediator assists the divorcing spouses in finding solutions that minimize disruption to the business and consider its long-term viability. This focus on preserving the family business can be crucial in maintaining stability and financial security for both parties and any dependents involved.

Conclusion

As you can imagine, divorces involving a family business can be complex, as the division of assets requires careful consideration of various factors determining the fate of the family business. It is crucial for individuals going through a divorce with a family business to seek professional legal advice to navigate the intricacies of family law and protect their futures.

“Ultimately where a family business is involved you must prepare yourself for a dispute over the proportions of the value that are non-marital and over the valuations themselves.” HFC Law

We know that family mediation is a highly effective and preferred method for resolving disputes related to a family business during a divorce. With emphasis on the factors discussed above, we aim to help divorcing couples maintain positive relationships and find resolutions that meet their unique needs, and help them move forward.