Justin Creed, Partner at Wright Hassall, looks at how to safeguard your business during a divorce.
Q: “I’m getting a divorce and my partner is trying to take half of my business, although I built it myself and it was already successful before we married. What can I do?”
A: This is a common question from business owners, and with good reason. Although it seems reasonable to expect an asset like a business to be ring-fenced, this is not the case. The principle of equality (established by White v White) is the starting point for any settlement. However, a judge has the discretion to depart from this basic principle following an assessment of needs when it becomes clear that an equal division of assets is not fair, particularly where children are involved and where the assets in question are relatively modest.
It might be some consolation to know that judges are not, on the whole, inclined to instruct the sale, or take assets out, of a business – not least as businesses provide an income stream on which future maintenance payments may depend.
Take legal advice early
It’s now mandatory to consider mediation at the beginning of court proceedings. This will give you and your partner an opportunity to negotiate a fair, sensible split of assets which may include some of the collateral in the business. To an extent, the outcome of mediation will depend on the type, structure and value of your business as well as the level of income you derive from it. If you own the business outright and your wife is involved then there is more likelihood that the assessment will include some of the value from the business. If you cannot agree, then it is likely that court proceedings will follow.
Take note if your partner is employed, or otherwise involved, in the business; do not assume that you can sack her – that way lies a potential claim for wrongful dismissal.
Don’t try to hide assets
There is some limited action you can take to protect your current financial position – particularly important if your business’s financial position is closely combined with your personal finances – such as lowering your credit card limit, but you only take this sort of action with legal advice. It will count against you if the court believes you are unfairly restricting your partner’s access to money.
Don’t be tempted to hide any assets. Judges take a dim view of spouses who deliberately hide money and other assets. The court has the power to prevent asset transfers taking place or cancel them if they’ve already happened.
Neither should you seek to hide personal assets within your business. In certain circumstances judges can ‘pierce the corporate veil’ and gain access to those assets.
It’s important that the financial settlement is agreed via a court order, making it legally binding and enforceable. This will prevent your partner from making a future claim against you (Vince v Wyatt), which could be very significant if your business continues to thrive.