The breakdown of a marriage is always difficult, but when you also own a business together, it can put even greater emotional and financial stress on the parties involved. In some ways, the most important piece of advice is to try not to change the status quo or to act hastily.
It might be tempting, for example, to resign as an employee of the business, and to walk away from a potentially acrimonious situation. There are many benefits for both parties, as business owners, and indeed for the business itself, to both individuals remaining as employees of the business if this is already the case – even if this is as a Company Secretary with minimal day to day involvement with the business. If, during the divorce process, one party’s shares are to be transferred to the other, or bought by the company, then there may be a Capital Gains Tax liability. Entrepreneurs’ Relief may be available on this transfer or buyback, provided that the exiting spouse has been an employee for 12 months prior to the sale. If a party resigns as an employee, the opportunity for this form of tax relief is lost.
During the divorce process, it can also be tempting to reduce your salary or dividend payments to try to impact financial proceedings. As part of the resolution of finances on divorce, the company may well need to be valued, and any scrutiny of the accounts will reveal actions taken in respect of the income each spouse receives from the business, and this will need to be justified. It may be that payments out of the business have to be reduced during proceedings for reasons outside of the divorce – this is fine, provided that it is done upon receipt of legal and financial advice, and is done so transparently.
If your business has shareholders or employees outside of the marriage, it is even more important that significant changes aren’t made on divorce without considerable thought first. Employees can become nervous when news of a divorce breaks, so it is important to ensure that the business won’t be dealt with rashly, or in a way which might compromise their role. Equally, if parties to a divorce become distracted by their divorce, to the point that it impacts their involvement in the business, it could have a detrimental impact on the value of the business – again potentially impacting both parties.
It is essential that parties seek legal advice as early on as possible, in order to ensure that neither party takes steps which could be detrimental, either to the business or to the claims of the individuals involved.