How can business owners protect their assets during a divorce?

Deciding how to split assets during a divorce can be contentious at best. If you’re currently going through a divorce, chances are, it’s not something you necessarily expected or planned to happen — but what does this have to do with your business?

If you established your business during your marriage or your spouse was involved, you might be worried that they might have a stake in your company. We look at how business owners with a high net worth can protect their business during a divorce.

What is a high-net-worth divorce?

A high-net-worth divorce is when at least one party is classed as a high-net-worth individual (HNWI). In the UK, this is a person who:

• Has an annual income of £100,000 or more.
• Has assets worth £250,000 or more. These don’t include:
  • The primary residence and any loans secured on the property.
  • Any benefits payable in the event of death, redundancy or retirement.

How do I know if my spouse is entitled to my business?

When looking to fairly divide assets, the court will have equality in mind and will base its judgement on what it deems fair to both parties.

If you’re looking to completely protect your business assets, your best chance is if you have a pre or post-nuptial agreement in place or you established the business (or became a shareholder of a business) before meeting or marrying your spouse. Even in this scenario, however, you can only dispute the division. With pre and post-nuptial agreements, while the courts will usually adhere to what was agreed, they are not legally binding. In the latter case, even if you established the business prior to marrying your spouse, they may still argue that they are entitled to a share.

In most cases, the interest is in securing the best settlement — one that doesn’t heavily impact your business or long-term finances. Therefore, the first step is to determine the value of your business assets. If you and your spouse fail to agree on this, you can consult an impartial forensic accountant to investigate. Then, the courts will decide a fair percentage to give to your spouse.

It’s important to remember that settlements can be made outside of court — this is preferable, as it usually results in less animosity between parties and can make the divorce process quicker.

What should you do?

If you’re a business owner looking to protect your assets, there are several things you shouldn’t do. We’ll outline these shortly, but before you move forward, there is one crucial step you must take.

Consult a divorce lawyer

Before talking about settlements, shares or liquidation, you should consult a legal professional. Family lawyers are well-versed in helping their clients secure the best result — it’s something they do every day. By retaining the services of a dedicated high-net-worth divorce lawyer, you’ll benefit from a wealth of advice from a firm with specific experience dealing with large settlements and business assets. Typically, the more at stake during your divorce, the uglier the scenario can get. It would be a disservice to you and the long hours you’ve put in to grow your business — potentially over several years — to not get the right legal representation, so ensure you dig deep into a firm’s knowledge and experience before moving forward.

What shouldn’t you do?

A divorce is often a time of uncertainty — fraught with stress, confusion and conflict. It’s all too easy to let emotions make decisions or to rush the process. Here’s what you shouldn’t do.

Gather information that isn’t yours

When in the moment, you may be tempted to sneak a look at your spouse’s email account or open their bank statement in an attempt to gain an advantage. It’s vital to note that the courts do not permit such actions and any evidence gathered without the right to do so will not be admissible.

Transfer your assets

Whether you’re attempting to hide them or otherwise, it’s not uncommon for a spouse to transfer assets to third parties, offshore or into trusts. While there may be innocent reasoning behind such actions, the court will take the view that you’re trying to deceive. If you are considering attempting to hide or disguise assets because you’re concerned your spouse may be entitled to a large stake in your business, the court can and will find out, and this is likely to put you in an even more difficult position.

Spend too much money

Similar to attempting to hide assets, it’s not uncommon for some individuals to spend money in the hope that it will reduce the financial settlement their spouse is entitled to. However, spending more than usual can raise a red flag. “More than usual” is key here — the court will look at spousal conduct (such as whether money was spent with the malicious intent to reduce the shared pot) and whether the spending was reckless. If this is found to be the case, the court may require you to “add back” the spent money, meaning your payout could be even more substantial. With your business already at the centre of the dispute, this can be incredibly damaging to your short and long-term finances.