While it is difficult to know how businesses will fare during the current coronavirus pandemic, and indeed which will survive at all, it is clear that very few businesses are benefitting from the current situation. This makes the already complex task of dealing with a family business during a divorce, all the more complicated, and the situation will require some careful and creative thought if a fair and practical settlement is to be achieved.
The very fact that the pandemic is unprecedented in modern times makes it almost impossible to predict what the economy will look like in a few months’ time.
How could the Coronavirus affect the valuation of your business?
The valuation of a business six months ago – or less – may no longer be accurate, and this may have a very significant impact on financial settlement options. It may therefore be tempting to put matrimonial matters on hold until the landscape becomes clearer – any impact on the business will be more apparent and it will allow the person running the business an opportunity to focus their attention on keeping the business afloat.
This is not always practical, however – very often business owners require the finality of a financial settlement in order to feel confident about making business decisions, for example borrowing or further personal investment.
Can you delay your financial settlement until the economy stabilises?
The Court will not want matters to be put on hold indefinitely and could well intervene if hearings are repeatedly adjourned without good cause.
One alternative to delaying matters is to write the delay into the settlement – for example, if it was always intended that the business should be sold and the proceeds of sale divided between the spouses, it might be possible to negotiate that the business should not be marketed until a year after any agreement is reached, in the hope that the market may have settled. Equally, if a spouse is to be bought out of their share of the business, it may be that they receive staggered and/or variable payments to reflect the relative success of the business after the initial difficulties have passed.
The difficulty with these latter options, however, is that a couple remains financially tied for a longer period – a Court would always prefer that parties are financially independent and separate following a divorce if possible. This said, in the current climate, what is and isn’t possible may have changed.
Can you revisit the valuation of the business at a later date?
Valuations can be re-visited if necessary, although the impact of the pandemic on the value of a company will vary greatly depending on the type of business.
In some instances, the advice may be that the value of a business is likely to recover fairly swiftly after the lockdown has been lifted and the affect will be minimal. Where valuations are currently low, it may well be beneficial for a party to instigate financial proceedings, to minimise the settlement payable to the spouse leaving the business. Equally, for businesses which are currently thriving, it may be that the individual, who will be looking to sell or transfer their shares, may wish to progress financial matters sooner.
In any case where one party is to use the business to borrow funds, either in a personal capacity or in respect of the business itself, in order to buy out a spouse, it will be important to investigate whether any lending previously agreed still stands and, if not, what other options there are in terms of borrowing in order to rectify this.
There cannot be a one-size-fits-all answer and, as yet, we are still only a few weeks’ in – it is apparent that the economic aftermath of the pandemic will be felt for some time to come.
It is important that you seek legal advice as soon as possible so that we can work with you to decide how best to deal with the family business.