Legal dramas never fail to grip the nation, tuning in to feast on the plots full of twists, turns, lies and deceit and the BBC’s The Split Up is no exception as a spin-off to the successful series The Split. This high-stakes drama, set in Manchester, centres around the Kishan Family and their firm specialising in high net worth divorce. The firm really is a family affair with managing partner Dhruv Kishan having built the firm from the ground up. With an eye on retirement and succession planning, (spoiler alert) he announces his daughter, Aria and future son-in-law, Neal as his joint successors. But has Dhruv considered what might happen if their breaks down?

Protecting your business prior to marriage

The best form of protection is to enter into a pre-nuptial agreement. If you are already married, you could consider a post-nuptial agreement which can be entered into at any point after your marriage. Both agreements can set out what will happen if you separate to ensure there is a clear roadmap and disruption to the day-to-day running of the family business is minimised.

The conversation around nuptial agreements can be tricky to navigate and getting advice at an early stage can be beneficial. Our experienced team can help navigate those difficult conversations and equip you with the knowledge for a balanced and open conversation with your partner.  

Key considerations

  • You must want to enter into the agreement and do so freely – undue influence or pressure from parents or a dominant partner can affect the validity of the agreement.
  • You each must disclose the extent of your financial circumstances in advance.
  • You must fully appreciate the implications of the agreement – in other words, you need to know what the agreement means for you in practical terms.
  • You must both receive independent legal advice before entering into the agreement.
  • It must be signed at least 28 days before the wedding to be a qualifying pre nuptial agreement. We usually recommend a 3-month lead time to ensure your financial disclosure can be exchanged and the draft agreement negotiated. We may need to liaise with an accountant as well.
  • If you are the financially weaker party, it is important to remember that your needs will need to be met as part of a financial settlement on divorce. Therefore, the agreement will need to be fair if it is to be upheld by the court. Currently, pre nups are not legally binding, but in recent years the court have been highly persuaded by them if they remain fair in the circumstances.

For more about nuptial agreements, click here

Protecting your business during a separation

During a separation, continuing to work together in the family business can feel like an impossibility. However, it is really important not to act hastily or make unilateral changes without having taken legal advice first.

The court will essentially want to understand how much your business interests are worth and then decide if that value should be reflected in the distribution of your assets overall. Businesses can be difficult to value as their capital value can often conflict with the income they produce for a spouse or the family. Private companies in particular will not have an obvious market to sell to and this can impact the value attributed to them. It may be necessary to undertake an expert valuation of the business where the income and capital values are not clear from the company accounts. This also helps determine the overall asset pool.

Business interests can often be offset against other assets in the form of a lump sum payable immediately,  by instalments or deferred until the sale of the company, if neither party wishes to continue in the business.

Consider:

  • your roles in the business, be that as shareholders, partners, directors, or employees and how the business can continue to run until your divorce is finalised. Avoid hastily resigning from your role. We can also help with putting in place shareholders agreements which cover interim periods.
  • if you agree that one of you will exit the business or will be bought out by the other, seek specialist advice about potential tax consequences or business reliefs that could be claimed.
  • think about how your separation will be communicated to your employees and what processes will be put in place to ensure they can continue to carry out their duties.
  • Whether you both have a working understanding of the financial performance of your business? The court will want to ensure you are on an equal footing as far as possible.
  • avoid minimising your earnings or the profitability of the company during the divorce. Whilst there are sometimes genuine reasons for a decline in productivity, the accounts will provide insight into the general performance of the business year on year and presenting a misleading position could come to light during the disclosure process. A court can also look behind current circumstances and will look at overall business performance over the past few years.

Early advice is key to ensuring your business interests can be protected as far as possible. Our team has a wealth of experience in advising business owners both large and small, be that for a happily married spouse or on the breakdown of a marriage. It can be a complex process requiring expert accountancy and legal advice.

If you are seeking advice or have any questions in relation to this article, you can contact us by calling 0345 450 5558 or by emailing [email protected]

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