When business break-ups can also mean divorce
Comments |
It is not unusual for business owners and their spouses to
devote their time, money and resources towards growing and
maintaining the business.
It is also not unusual for them to divorce.
Some businesses are healthy, the shares easily valued and there
is enough cash to pay out the divorcing spouse. As we emerge from a
recession very few businesses fit that description.
Consider "Edith" who is hoping for a fair settlement when she
divorces "Bob". She owns no shares in the business Bob started
seven years ago.
The business was profitable before the recession but has
struggled and the parties accept it is worth less today than it
will be in five years' time. Apart from the shares, they own no
other major assets.
Rather than accepting an immediate and possibly a low pay-out
for her interest in the shares, Brachers have been able to help
Edith in agreeing a settlement whereby she will take shares and
participate in the future growth of the company.
If divorce means permanently parting married couples, then it
seems bizarre that they should become joined as shareholders. Where
no other arrangements are available and the business cannot support
the payments necessary for a fair divorce, then the parties may
wish to consider this route. It does have it attractions but also
some dangers.
Whilst the court has the power to make an order by consent it is
possible that the court may order an immediate payout or may order
Bob to pay a share of the profits to Edith with payment of a
capital lump sum in the event of the sale of the business.
Edith's entitlement to the income of capital of the business
must be legally protected. If Edith does take shares in the
business then a business agreement between the parties is
imperative.
Some spouses (especially if this is not their first recession or
their first divorce) have already structured their affairs so that
they do not own the business outright - it might be in a trust or
the business might be owned jointly with other third parties.
The negotiations in relation to a spouse's interest in a company
or business involve matrimonial law and company law. It is
imperative that business owners consider a company law strategy and
that they also consider the likely impact upon the business
of†a†divorce†and that they plan accordingly.
Wednesday, February 16 2011
The KM Group does not moderate comments.
Please click here for our house rules.